Franchise Disclosure Documents and Agreements are often lengthy, knowing what and who to ask, can help you immensely when buying a franchise. Here’s a list of 6 important questions to ask to both the franchisor and franchisees.
How much am I going to have to pay in total?
- Almost all franchisors will give you the total start-up costs in a range form, e.g $35,000-$125,000. Franchisors give you a range because there are a number of factors to consider when starting a franchise, including real estate. Given a general location, along with a few other details, a franchisor should be able to reduce the size of that range to give you a better estimate of your total start-up costs.
How many franchises do you have in your system?
- Finding out how many franchises are in their system can be helpful. Having a smaller amount of locations is not a bad thing but with more locations, a franchise system is usually well tested. That’s not to say a newer franchise is bad, quite the opposite. Getting in on the ground floor of a new franchise system can be extremely lucrative!
How many franchises have closed and why?
- After you’ve found out how many franchises are open, it’s also a good idea to find out how many franchises have closed and why. This is one of the many factors that go into deciding which franchise is right for you.
How do you assign territories?
- Almost all franchise systems work on a territory system, where each business owner is allotted a few square miles, a city, a county, etc. When talking with the franchisors, you should find out how they assign territories and what protection you have. How close is the next franchisee? How close is your competition?
What is the company’s greatest competitive advantage over others in the same industry?
- Although you can ask the franchisor this question (and you should), I suggest you also talk with existing franchisees. Get an idea of what competitive advantage the franchise has over other businesses.
What kind of training and support system is in place?
- Does the franchisor offer training? Is there on-going support, support-materials, etc.? Ask the franchisor what kind of support they offer. Not all support systems are alike. Support can range from company websites, printed material, and phone.