Buying a franchise is a viable option, as it’s much easier than starting your own business from scratch. However, some crucial questions need to be addressed before committing to franchising. There are obvious questions that usually don’t need to be asked as they’ll be answered in your disclosure agreement (a list of franchisees, franchising fees). The questions that need to be asked are those that provide a keener insight into the workings of the business.
Before investing, you can also conduct thorough research on the people you want to franchise from, their model of business versus how you work, and your overall vision. Their vision should be something you’re willing to buy before you sign your franchise agreement. You can also check out various franchisers in the sector you’re interested in before signing a binding agreement.
In a franchise business agreement, the franchisor provides several things, including:
- A structured way of doing business
- Continuous guidance
- Access to systems
- Miscellaneous advice
All of this is provided in return for periodic payments. In the franchisor disclosure agreement, all these points and others were disclosed. For example, if you want to know how to open a franchise restaurant, you need to know the important things before you start franchising.
Listed below are some questions that have been compiled that probe deeper, and reveal the insight you need to make the right decision.
- What Are The Most Common Problems Your Franchisees Faced?
When asking this question, you’re looking for the specific problems that are common to all the franchisees that have come before you. As you listen to the problems stated, you need to determine what the source of the problem would be. Are certain problems related to a certain area? Are you situated in that area? Are there cultural barriers causing problems? These questions indirectly probe the efficiency of the franchisor.
- How Has Your Franchisor Stepped In To Help With These Problems?
In this question, you’ll know helpful the franchisor will be at moments when the business needs assistance. The way they helped or their lack thereof is usually a good indicator of whether you can commit to the franchise or not.
A good example is how your potential franchisor responded to the COVID-19 pandemic. Many businesses struggled and are still struggling as a result of the pandemic. A good franchisor will have a clear response strategy that they implemented to help its franchisees during the hardest hitting times. If a franchisor can ignore something like this, then you probably have no guarantee they’ll have your back in anything.
- Are There Specific Qualities You Have Noticed That Are Evident In Successful Franchisees?
The other side of this question that’s connected with this one is “Are there qualities that lead to failure?”
Due to the nature of different franchises, some certain qualities and skills are more valued than others in different situations. These linked questions are asked for you to see whether there are any patterns in the package of qualities that have been detected that can determine the success or failure of a franchise.
Knowing this helps you decide whether it’d be a good fit or not for the franchise. Sometimes a negative pattern could be indicative of inherent flaws in the franchise itself and will require due diligence to be conducted.
- Is This An Exclusive Or Inclusive Territory Agreement?
This is a critical detail to have as its answer will determine a lot about your potential business operations. An exclusive territory agreement will give you exclusivity to a certain area. This means the franchisor won’t franchise anyone else into the same territory. You eliminate direct competition by getting this sort of agreement.
On the other hand, a non-exclusive agreement doesn’t have the same exclusivity as the former. A franchisor can allow another franchisee into ‘your’ territory. Chances are they’ll only do that after your branch is established enough to withstand that competition.
Find out what type of agreement they’re able to offer you before deciding to franchise.
- Have You Turned Down Prospective Franchisees?
Assess the seriousness of the franchisor by asking the reasons why they turn down prospective franchisees. This way you’ll get insight into the qualities they value as a franchise.
It’d be very disheartening to learn that the franchise allows just about anyone to sign on with them. Easy acceptance of franchisees may lead to high failure rates which wouldn’t reflect well on a business.
In the case of a new franchise start-up, due to lack of experience with applicants, they may not have an adequate response to this question, but they would still have ideals, and that’s something you can question them about.
- What Changes Did You Make To Support Your Franchisees During The Pandemic?
This is a very important question. Covid-19 changed the way the world operated for quite some time. Knowing how the franchisor dealt with things in the worst-case scenario will give you insights as to how they operate in the best-case scenario.
During the pandemic, some franchisors did their utmost to support their franchisees from waiving fees to adding new technologies that supported Covid-19 initiatives to keep them informed about various safety changes. To produce creative marketing strategies relevant to the current situation, see what kind of change they can do to support their franchisees.
- Is There Any Ongoing Litigation With Any Franchisees?
As a company, especially a thriving one, lawsuits are a common occurrence. Experiencing lawsuits, in itself, isn’t an issue. This question strives to establish how the franchisor responds to lawsuit situations and whether the problem is with the franchisees or if there’s an underlying problem stemming from the franchise itself. This question leads to a series of other linked questions such as:
- What caused the lawsuit?
- Is it the franchise or franchisee suing?
These are questions that are best-done face to face, probably during your “discovery session”. Be alert to detect if there’s any anger and the level of emotion displayed by the executive.
- Are There Any Major Technology Or Equipment Upgrades Planned?
Sometimes there are equipment upgrades that need to be paid for by the franchisee. And if there’s an upgrade planned shortly after signing a franchise agreement, it’s something that you should know.
In other instances, the upgrade could be paid for by the franchise and is either an equipment or software upgrade that would make the franchise as a whole even better and possibly make it more competitive on the market.
Both aspects are crucial to your decision on whether to sign with the franchise or not. This question probes how much the franchisor values the well-being of the franchisees.
While not exhaustive, the above questions will force introspective answers if asked correctly. It’s very important to remember this, don’t be afraid to ask. It’s also a good idea to try and develop a good relationship with the franchisor executives before asking deep questions.