Transitioning corporate executives and other individuals that may be exploring franchising as a career alternative often ask me to help them outline questions to ask franchisees and franchisors as they’re doing their due diligence. Here’s how I advise them…
Using the Franchise Disclosure Document (FDD) as my guide, I would ask very specific questions. I would follow the FDD item by item and ask questions pertaining to each section. It’s a can’t-miss road map.
Exploring a franchise opportunity outside the United States? As most franchisors are either based in the United States, or, at the very least, offer franchises within the United States, they will already have developed a Franchise Disclosure Document to provide to franchise candidates before the franchisor can accept any money from the franchise candidate. As they are required to do so, I would request a copy of the FDD about any franchise concept you may be exploring. You may do so directly from the franchisor or from the various federal and state agencies within the United States of which most can be accessed online.
Get to understand the history of the concept. The passion of the founder. The experience of the executive and support teams. Have they actually worked in a location? Have they owned a business before? Kind of hard to provide guidance if they haven’t!
Make them validate the expenses involved and gain a complete understanding of the range of expenses and why? Ask questions about assistance from finding a location through to grand opening. Ask about the temperament of the franchise group as a whole and within your market. Of course, I highly recommend speaking with franchisees too. Make sure to ask them point blank questions about costs, problems, profits, trends, etc. Ask the franchisor and franchisees about the competition. Ask about business, revenue trends of the system as a whole.
Ask questions about the operations manual. Ask questions about advertising cooperatives and associated fees. Focus on year two and three that are usually turning points in your business and relationship with franchisor. Ask questions about normal, routine support and support if you are in trouble, crisis!
Ask about exit strategies. Either because you want to exit or because you must exit. Ask about transfer fees and the process in selling your business. Understand the franchisor’s approval process.
Ask questions about franchisor’s litigation. Know the why’s and how’s. Ask why each franchisee listed as having failed, actually failed?
More than anything, after this process is complete, trust your gut instinct! Take your time and think this completely through until you’re 100% sure of your decision. Make sure you have all your support mechanisms in place including friends and family. Do not kid yourself. Do not lie to yourself. And, do not justify any negatives.
Do you have a favorite question or two to add? Please submit them below.