5 things every prospective franchisee should do before they sign a franchise agreement (in addition to reviewing the documents!)

Franchising is a high-stakes, long-term, and costly investment. Whether to sign with a particular franchisor is a big decision, not to be taken lightly. Given this, it is essential franchisees undertake due diligence before they sign on the dotted line. That due diligence should not start and finish with reviewing the franchise agreement and disclosure document.  This article explores 5 practical things franchisees should do before they enter into a franchise agreement. 

  • Ensure franchisee satisfaction by proactively reaching out 

The disclosure document must provide comprehensive contact details for both current and former franchisees. Prospective franchisees are urged to leverage this information and initiate contact. Prospective franchisees should call a diverse range of franchisees, not solely those endorsed by the franchisor. They should engage also with former franchisees, including any that have been terminated. In making these calls, prospective franchisees can learn a lot about about the level of support provided by the franchisor, whether they would embark on the franchise journey again armed with hindsight, and their overall satisfaction as franchisees.

  • Research the franchisor’s expansion strategy

Pay close attention if the franchise business relies on physical locations. Prospective franchisees should enquire as to a franchisor’s growth plans. An aggressive growth plan, aiming to open a site in every suburb, might affect an individual franchised business. There may simply be too much competition. On the flip side, if the franchisor lacks clear expansion plans, it’s tough to foresee brand growth and, as a consequence, increased brand goodwill. 

  • Explore the franchise recruitment strategy 

The reputation of franchisees can affect the brand’s overall reputation. Negative Google reviews or publicity about one franchisee can tarnish the entire network’s image. While a franchisee can’t control who the franchisor approves, they should make sure they’re selective. Prospective franchisee’s should not hesitate to ask the franchisor about their approval rates and criteria for selecting franchise partners. 

  • Ask the franchisor what they are investing in the franchise brand and look at their business plans

Investing in a franchise means investing in a brand and the right to use its processes and sell specific goods or services. A franchisee’s business success often relies on the franchisor’s efforts, so it’s crucial to ensure they prioritize growth and system improvement. High investment in product or service is key, as is investing to support franchisee partners. To gauge a franchisor’s commitment to the network, prospective franchisees should ask them directly what they are doing to enhance the goodwill and improve systems, including what financial investment they are making. 

  • Connect with the faces behind the brand 

Take Jim’s Mowing (well, actually Jim’s pretty-much-everything)  as an example; Jim himself gives out his direct email and mobile number to all franchisees. This shows Jim values personal connections and supports his franchisees. Before committing to a franchise, get to know the people behind it. Look beyond their qualifications and experience; assess their availability to assist you and their preferred communication style. Don’t forget to ask existing franchisees about their interactions with the franchisor representatives and whether they feel well-supported.

If you’re thinking about signing a franchise agreement, these tips can guide your due diligence. Remember, these steps complement understanding your legal responsibilities. It’s essential to involve a franchise lawyer to review important documents and provide advice. At Magnolia Legal, franchising is our expertise. We’re passionate about assisting new franchisees. Reach out to us for a no-obligation initial conversation to explore how we can support you on your franchising venture.

Disclaimer: This article contains general information only and does not constitute legal advice. Magnolia Legal disclaims any liability arising from reliance on this article. Our terms of use apply