When considering buying into a franchise, speaking with existing and former franchisees is critical. The Franchising Code of Conduct mandates that the details of all franchisees, current and former, be listed in the disclosure document. This makes it easier for prospective franchisees to conduct thorough due diligence. But these conversations need to be structured. In this article, we recommend key questions to ask that will provide valuable insights.
Are You Happy with the Support from the Franchisor?
One of the first things to ask is whether the franchisee is satisfied with the support they receive. It’s crucial to drill down into what actual support the franchisor provides. For example, does the franchisor offer ongoing training, marketing assistance, and operational guidance? Or is the support minimal and limited to just the initial setup? Getting specific details on how the franchisor supports franchisees can reveal whether the promises made in the franchise recruitment process align with reality.
How is Your Financial Performance?
Understanding the financial health of the business is essential. Ask whether the franchisee is happy with their financial performance and if they see room for growth. Dig deeper by asking if they feel they make a good living considering the effort and time they put into the business. Be sure to clarify whether their financial returns meet the expectations set by the franchisor. Knowing this can help you assess if the franchise agreement offers a fair deal and if your investment is likely to pay off.
Would You Open a Second Franchise Unit?
If a franchisee would gladly open a second unit, it’s usually a good sign. It shows they are confident in the brand and business model. On the other hand, hesitation or a firm “no” could signal potential issues. A reluctance to expand could be due to lack of support, financial struggles, or simply being unsatisfied with the franchisor’s operations. A franchise lawyer can help you explore whether these concerns stem from terms in the franchise agreement.
What Surprised You Most About Being a Franchisee?
Franchisees often discover things that are not obvious during the initial recruitment process. This could include unexpected costs, challenges in managing operations, or difficulties in attracting customers. Understanding what surprised them most can help you identify potential pitfalls. It’s a great way to uncover hidden aspects of the franchise that may not be explicitly outlined in the franchise agreement.
How Receptive is the Public to the Brand?
Gauge the brand’s popularity and market acceptance by asking how well it’s received by customers. Questions like ‘are the franchisees struggling to build a loyal customer base, or is the brand well-known and trusted in the community’? are helpful. Importantly, poor brand recognition or a negative public perception can impact your success. Accordingly, knowing this upfront helps you set realistic expectations and adjust your plans accordingly.
Why Did You Leave the Franchise?
If speaking to a former franchisee, your first question should be why they left or were terminated. For example, was it because of dissatisfaction, financial losses, or unmet expectations? Or was it due to issues beyond the franchisor’s control, like personal reasons? You should also ask if, despite leaving, they would do it all again if given the chance to start over. A positive response could suggest that while the franchise didn’t work for them, it might still be a viable opportunity for you.
Raise Concerns with the Franchisor
If concerns come up during these conversations, don’t hesitate to raise them with the prospective franchisor. An open and transparent discussion is vital to a successful franchise relationship. A reputable franchisor should be willing to address your questions and provide clarity on any issues. If they are defensive or dismissive, it’s a red flag. Remember, your franchise lawyer can review the franchise agreement and advise on how the contract applies to your concerns.
Final Thoughts
Talking to current and former franchisees is one of the most valuable steps in evaluating a franchise. The insights you gain can be more telling than what’s written in the franchise agreement or presented by the franchisor. With the right questions, you can uncover key information that will help you make a well-informed decision. Additionally, a franchise lawyer can help ensure that your interests are protected as you explore the opportunities available.