6 Questions to Ask a Franchisor before Making a Purchasing Decision
Franchising is a great way for new entrepreneurs to hit the ground running with an effective business model.
But before you invest in a franchise, you’ve got to do your due diligence. Franchisors reveal a lot about their business through the Franchise Disclosure Document (FDD), but knowing what questions to ask a franchisor will help you make an informed decision that will pay off for the years to come.
Here are six questions to ask a franchisor before buying a franchise:
1.How much do I need to invest?
There are more than 3,000 franchise brands, and each one of them has different financial requirements. The average investment for a new franchise can range from a few thousand to millions of dollars. Knowing exactly how much money you’ll need to invest is one of the first questions to ask a franchisor. Some answers can be found in the Franchise Disclosure Document (FDD). Item 5 in the FDD lists the initial franchise fee. Item 7 outlines other startup costs such as real estate and supplies. It is important to discuss these financial items with the franchisor so you have a good idea of what type of investment you will need to open your business.
2. What royalties and marketing fees should I expect?
In addition to the initial startup costs, franchises also charge ongoing fees such as royalties and marketing fees. These fees vary depending on the franchise. The charges allow the franchisor to provide support services to new franchises. This franchise interview question is important to understand these financial obligations upfront. You can find a full list of fees and requirements in Item 6 of the FDD.
3. How long do I have to wait until the business breaks even?
Like most new businesses, franchise owners must have enough operating capital on hand to cover costs for the first several months or until the business breaks even.
There are so many variables that can play into the time it takes for a business to begin turning a profit. By asking this franchise question, your franchisor can give you a good idea of how long, on average, it takes most franchisees to make a profit.
4. How do you choose who will be awarded a franchise?
Believe it or not, most franchisors don’t just sign up everyone who waves a wad of cash in their direction. A good franchisor is selective with its prospective owners; otherwise, they run the risk of hurting the reputation of the brand.
Every franchisor has things in their ideal candidate profile that are deal-breakers, such as a low credit score or a net worth that fails to meet minimum requirements. A good question to ask the franchisor about the criteria they look for in new franchisees.
5. What’s the origin of the franchise?
Knowing the history of how the franchise got started and the background of its executives is very important to help you identify with the basics of the business. Ask about the founders and the company’s mission statement. You can also inquire about what future revenue projections look like. Keep these details in mind as you work to find the perfect franchise match.
6. What type of support should I expect?
Getting a new venture off the ground can be a challenge. A key question to ask the franchisor is how they will support you with the business operations and processes before you open your doors.
Typical support for most franchisors includes:
- Site selection/real estate
- Establishment of national supplier relationships
- Books, payroll, and accounting
- Reporting metrics
- Operations, sales, and marketing programs
- Employee training
- On-site location setup
- Grand Opening support
While most franchisors offer initial support and training to get your business up and running, you should ask what kind of ongoing support is available during your franchise interview and how it compares to what similar franchisors offer.
These are just six questions to ask the franchisor. The more questions you ask, the more you’ll know about the business and its future. Take advantage of your franchise interview with your potential franchisor to ask all the necessary questions that can empower you to assess their reliability.
Get Your Franchise Interview Questions Answered
Did you know you can attend a professional franchise expo without having to be an established franchise owner? MFV Expositions has been coordinating premier franchise events for more than 30 years. We provide the platform for franchisors to generate qualified leads and for prospective franchisees to discover the best brand for their business needs. Interact with franchisors, see what’s out there, ask questions and learn more about the industry.
Attend an expo to take the next step in your franchise future.