Do you love the concept of owning your own business but lack a killer idea and the knowledge of how to run one? If you said yes, franchising is probably for you. But before you leap into a business make sure you know how to choose the right franchise for you. We created a list of questions that you can have in your back pocket to ask franchisors when you’re choosing a franchise.
Use the following checklist to navigate the franchise purchase.
Questions to Ask Franchisors
- How long has the franchisor been in business?
- How long has it been offering franchises?
- Is it a subsidiary of another company? Who is the parent company? Has that company ever franchised other products or services?
- What is the franchisor’s current financial condition?
- Have you received the franchisor’s recent audited financial statements?
- Who are the franchisor’s directors and officers?
- Does the franchisor have a reputation of honesty in dealing with its franchisees? With its customers?
- What is the franchisor’s standing with the local Chamber of Commerce?
- Have you discussed the franchise’s plans for the future development and expansion or diversification?
- What effect will development and expansion have on your dealings with the franchisor?
- What innovations has the franchisor introduced since first starting?
- How selective is the franchisor when choosing its franchisees?
- Have your qualifications been reviewed?
What Questions Should You Ask About A Franchise’s Product or Service(s)?
- What makes the franchise’s product or service(s) unique?
- How much of this product or service is presently sold?
- Have sales been increasing or decreasing?
- Would you buy the product or service on its own merits?
- How long has it been on the market?
- Is the product or service marketable in your territory?
- Is the price competitive with similar products or services in the market?
- Have you reviewed the federal/local standards and regulations governing the product or service?
- Are there product warranties? Are they your responsibility or the franchisor’s?
- Is the product patented or protected by trademarks or copyrights?
- Have you assessed franchise competitors of like products in your area?
- To what extent is your trading area exclusive?
- Will the franchisor be opening other franchised outlets nearby?
- Under what conditions can your sales territory be expanded or contracted?
- How will you establish the sales potential of your territory?
- Has the franchisor provided demographic data projected the next five years?
- Do you have data on the age, income and occupations for people in your area?
Questions for Current Franchisees
- What was the total investment required by the franchisor?
- Are there any hidden or unexpected franchise costs?
- Are you satisfied with the quality of goods supplied by the franchisor?
- Are you satisfied with the price/quality relationship?
- How reliable is delivery from the franchisor?
- How long was it before your operating expenses were recovered by revenue?
- How long was it before the franchise was able to pay you a reasonable management salary?
- Has your franchise been as profitable as you expected?
- What kind of management/training was provided? Did it meet your expectations? Where was it held?
- Have you had a serious disagreement with the franchisor?
- Was it settled amicably?
- Does the franchisor respond helpfully to questions?
- Are you satisfied with the marketing potential and advertising assistance?
- If you could change your contract, what would you change?
- Would you advise anyone to start a franchise with the franchisor?
- What have you done to make your franchise successful?
The Franchise Contract
- Does the contract protect yourself as well as the franchisor?
- Are the rights and obligations of both parties clearly stated?
- Is the contract specific as to the type and size of operation you are expected to manage?
- Are the nature, duration, cost and extent of your training outlined in the contract?
- Are your payments to the franchisor clearly specified?
- Are the following shown: the franchisee fee, fixed yearly payments, royalty, advertising contribution, continuing services fees.
- Must you purchase your essential supplies from the franchisor or designated supplier?
- Is there a minimum amount of merchandise you must purchase from the franchisor each year?
- What happens if supplies are interrupted? Can you purchase goods from alternate suppliers?
- Do you have the right to the franchisor’s latest innovations?
- Is there any annual sales quota? Is it attainable?
- What types of reports are you expected to provide?
- Does the contract cover all the franchisor’s verbal promises made during the interview?
- Will the franchisor maintain any federal and provincial registrations?
- Can the contract be renewed? If so, on what terms?
- If leasing the location, will the lease be for the same term as the franchise agreement?
- Can the lease be renewed if you renew the franchise?
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