Important Questions To Ask Before You Buy A Franchise?
February 8, 2023
With the profound effect on the economy of the COVID pandemic, it is more significant than ever to do your own analysis before investing in a franchise. It’s always a good idea to read independent feedback from existing franchise owners as part of your due diligence. A good place to start is to research franchisee satisfaction surveys, but you may also want to talk to as many established franchise owners as possible, as well as the franchisor, to vet a brand before purchasing.
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You probably already have several questions of your own, but as a useful starting point, we suggest these:
Questions about during/after COVID Effects
- How was your organization affected by COVID? Are you behind 2019, up, flat?
- How has your interaction with the franchisor / corporate team since COVID changed?
- What adjustments are going to be part of the way you do business going forward during COVID?
- How did you update your COVID-based 2020/2021 goals?
- What are some ways in which the corporate team helped you handle the chaos and open up the backup during quarantine?
- What are the safety precautions in your room for visitors and employees?
- During this spring/summer, how did fellow franchisees cooperate or support each other?
- How would you rate the brand’s technology/innovation (online ordering, distribution, items)?
Questions to Ask Before You Buy a Franchise during and after the Pandemic
- Did your business opening go according to plan?
- How good and beneficial has your initial training been and is the continuing training?
- How much help are you provided on a day-to-day basis by the franchisor?
- Will the franchisor help you fix them if you run into issues?
- Will the franchisor periodically visit you?
- How helpful are the handbooks on operations and training?
- Do they arrive on time if the franchisor offers goods, and is their quality consistent?
- How long has it even taken to break?
- When were you making a profit?
- What was your gross first-year revenue? Now, what is it?
- Was turnover and profitability in line with what you were told by the franchisor that they would be?
- Does the franchisor promote the contact of franchisees with each other?
- How helpful are the other franchisees?
- What do you wish you knew that you weren’t going into business?
- Is there something that you’d do differently?
- Ask the franchisor the following questions to help decide whether the franchise you are considering is a successful investment:
- How long have franchisees been franchising?
- What are the management team’s knowledge and experience?
- Is this undertaking financially sound? Ask if they will have, and make your accountant look at, three years of audited accounting and current management accounts.
- How many current owners of a franchise are there? How many owners of franchises have failed? Why were they failing?
- What evidence is there to prove the marketplace’s viability? Is there a demand for goods or services on a long-term basis?
- Who are the major rivals, and in terms of price, cost, distribution, and operation, how do they compare to the franchise?
- How much and what does the start-up investment include?
- How much, on an ongoing basis, would you have to pay the franchisor?
- For your business, what are the financial projections?
- Is there any established territory? How is the franchisor preventing its franchisees from cannibalizing each other’s business?
- How long is the length of the franchise contract? Can it be renewed?
- How long does it take, after the agreement is signed, to be up and running?
It can be incredibly exciting and also considerably overwhelming to buy a franchise or start some new venture. Nevertheless, you will be able to make a decision based on evidence and data by asking the right questions and doing rigorous due diligence so that you can set out with confidence!
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