50 questions to ask a franchisor
Here are 50 questions that we recommend you put to any franchise business that you are considering joining.
All reputable franchisors will welcome these questions and indeed some of them will insist that you follow certain steps in the journey to becoming a franchisee —including, for example, that you take legal advice before signing the franchise agreement. You should never be afraid to ask a question and should carefully note and weigh up the reply making sure you receive a proper response. You should not rush your decisions when considering franchise opportunities.
On their Business
1. How long have you been in franchising?
2. How many franchised businesses are you running at the moment?
3. What are the addresses of these businesses?
4. May I interview any number of these franchisees? And may I choose whom I interview?
5. What does your head office organisation consist of?
6. Can you demonstrate your capacity to provide the necessary follow-up services?
7. May I take up your bank reference?
8. Are there any other referees whom I may approach?
9. How many franchise business failures have been experienced by your franchisees?
10. On what basis do you choose your franchisees — how selective are you?
11. How much does your franchise opportunity cost, what does this price include and what capital costs will be incurred in addition to this price? And what for?
12. How much working capital do I need?
13. What will be the gross profit margin and what costs will I incur in arriving at a net profit? (Do these figures take my salary and depreciation into account?)
14. May I see actual accounts which confirm or fail to confirm your projections?
15. Did you run your own pilot schemes before franchising?
16. If not, why not?
17. Whether you did or not, what is the extent of your own cash investment in the business?
18. What financing arrangements can you make and what terms for repayment will there be? What rate of interest will be required — and will the finance company want security?
19. Is the franchise business seasonal?
20. When is the best time to open?
21. What fees do you charge?
22. Do you take any commission on supplies of goods or materials to a franchisee? Do I have to purchase all or just scheduled items from you? Does this apply to equipment?
23. Will I be obliged to maintain a minimum fee or minimum purchase of goods? What happens if I fail to meet this commitment?
24. What advertising and promotional expenditure do you incur?
25. Do I have to contribute to it, if so how much?
26. What initial services do you offer?
27. Do you train me? Who pays for my training? Where do I go for training?
28. What continuing services do you provide after the franchise business has commenced?
29. May I have a copy of your franchise contracts?
30. Does this contract permit me to sell my business? What restrictions are there affecting my rights to sell the business?
31. For how long is the franchise granted?
32. What happens at the end of that period?
On Your Involvement
33. What will happen if I do not like the franchise business?
Upon what basis can I terminate the contract?
34. Who will be my link with you after I have opened for business?
Can I meet some of your staff?
35. What point of sale and promotional literature do you supply and what do I have to pay for it?
36. What will be the opening hours of the franchise business?
37. Will I own the equipment necessary to operate the business when I have cleared the finance company?
38. How soon will I have to spend money on redecorating the business premises?
39. How soon will I have to spend money on replacing equipment?
40. Will you find me a site or do I have to find it?
On Communications & Operations
41. What systems do you have for keeping franchisees in touch with you and each other? Do you publish a newsletter? Do you hold seminars?
42. What help will I receive in local advertising and promotion?
43. What exclusive rights do I get?
44. How will I cope with my book-keeping?
45. What can I sell and what can I not sell?
46. Do you provide instruction and operation manuals?
47. What would happen if you misjudged the site and it did not produce the anticipated figures but resulted in a loss?
48. What would happen if I ran into operational problems I was not able to solve? What help would I get?
49. How can I be sure you will do what you promise?
50. Is your company a member of the bfa? If not may we know the reason?
The value of the answers received will be a matter for your judgment. You can, of course, verify the value of the answers by the experience of existing franchisees. Speaking to existing franchisees will form a very important part of your research. They have, after all, been living with the business and with the franchisor for some time already so their responses will help in your decision making. You must choose those whom you wish to interview, you should not let the franchisor feed to you only his best franchisees.
These questions were compiled by franchising legal expert Martin Mendelsohn.