Top 10 Questions To Ask When Buying A Franchise

Before buying a franchise, speak with both current and former franchisees about startup costs, royalties, training, ongoing support, closures, and their overall experience with the franchisors. These conversations can reveal practical information that may not be obvious from the Franchise Disclosure Document or franchise agreement. 

Federal law generally requires a franchisor to provide the Franchisor Disclosure Document at least 14 calendar days before the prospective franchisee signs a binding agreement or pays the franchisor. Item 20 of the FDD includes information about current franchisees and certain former franchisees you may contact during your due diligence.  

The following questions can help you evaluate the franchise opportunity and identify issues that deserve closer review. For help reviewing the FDD or franchise agreement, contact Luther Lanard, PC. 

The 10 Questions You Should Ask Before Purchasing a Franchise

As you reach out to franchisees who are already in the system and operating the business, ask them these questions and be mindful of their responses.

1. What Training and Ongoing Support Does the Franchisor Provide? 

This will give you great insight into how much the franchisor supports new franchisees and whether or not a franchise gets set up for success.

2. Would the Franchisee Do it all Over Again if They Had That Option?

If they say “yes” or “no,” ask them why. The nature of their answer will help you evaluate the franchise opportunity rather than just a yes or a no. The franchisee may also offer insights into mistakes you can avoid when you’re starting out.

3.  Are The Franchise Royalties Worth the Support and Services Provided? 

This will help you understand if the potential venture is worth the investment or if you’ll be losing a lot of potential revenue just on your financial obligations to the franchisor.

4. Did the Actual Startup Costs Match the Estimates in Item 7 of the FDD? 

This will give you a great idea of whether the FDD underestimated its startup costs or if the information provided was accurate. Information like this offers a good understanding of your financial realities in the initial months of running the franchise.

5. What Types of Problems or Issues Did the Franchisee Face with the Franchise?

Here’s another chance to learn from the mistakes or challenges that other franchisees experienced. This insight could help you identify issues you may not have thought of while weighing the franchise opportunity.

6. How Many Franchise Locations Closed or Left the System? 

Note how many franchises failed in the last year, as noted in the FDD. Were there more closures than openings? Feel free to ask franchisees in the system what they feel about these numbers.

7. What Do Franchisees Like Most and Least About Operating the Business? 

This is an excellent opportunity to understand the ups and downs of running the franchise each day. Ask additional questions that may be useful to you along these lines you so you can get realistic expectations about running this type of business.

8. Is the Franchisor Open to New Suggestions?

The franchisor-franchisee relationship isn’t always one-sided. Ask franchisees how their experience has been with the franchisor when it comes to new ideas and making suggestions for improvement. Figure out if these align with your values.

9. What Support Does the Franchisor Provide After Initial Training? 

After the franchise got off the ground, did the franchisor offer any additional training and assistance, or did they remain hands-off? Did the franchisee feel this was good or bad, and how did it impact business and regular operations?

10. What Did the Franchisee Wish They’d Known Before They Bought the Franchise?

New franchisees and veteran franchisees may have different responses to this question. Their insights may give you a sound short-term and long-term perspective on your future as a franchisee and whether this opportunity is right for you.

How to Evaluate the Answers You Receive From the Franchisor 

After speaking with current and former franchises, compare their answers with the information in your Franchise Disclosure Agreement (FDD). Look for consistent themes rather than relying on a single opinion. 

We recommend speaking with as many current and former franchisees as possible to gain a balanced perspective before buying a franchise. 

Do I Need to Ask the Franchisor’s Permission Before Contacting a Franchisee? 

No. You do not need the consent of the franchisor to call a franchisee listed in the Franchise Disclosure Document. Additionally, the franchisor does not need to set up the call with the franchisee. You can do this yourself.

As you make those calls, be sure to ask your own questions about running a franchise. Again, do that research and get the answers you need to make the best possible decision.

Do I Need a Franchise Lawyer to Review the FDD?

While hiring a franchise lawyer is not required, having an attorney review the Franchise Disclosure Document (FDD) can help identify potential risks before you sign. At Luther Lanard, PC, our attorneys have more than 50 years of combined experience in franchise law, and we understand the business landscape in Florida, California, Pennsylvania, and Texas.

If you would like to speak with a franchise attorney about an FDD, a potential franchise opportunity, and how to make the best financial decisions as a new franchisee, contact our law firm today.