Ask these six questions when meeting a franchisor to cut through the marketing hype and discover the truth about their franchise opportunity.
You’re excited; you’ve found a franchise you really like the look of and you’ve set up an interview with the franchisor. You can picture yourself in the role and frankly you’d just like them to take your money, so you can get on with your new life as the owner of a franchise business. Great enthusiasm but a word of advice, ‘slow down.’
Buying a franchise is a big commitment and you need to ensure you’re investing in an ethical, sustainable business, run by people who know what they’re doing. You have some crucial facts to gather before parting with your hard-earned cash.
Turning up to your first meeting armed with the questions below will not only indicate you’re serious about the purchase, but it will also furnish you with crucial facts to help you make the right decision. Any good franchisor should have the answers to these questions and be willing to share them with you. If they won’t or can’t – walk away.
Question: “What is your ‘average’ franchisee’s profit each year?”
When a franchisor publishes projected earnings figures these are likely to be based on their highest earning franchisee’s figures.
They’re not distorting the facts, in every franchise there are going to be a couple of star franchisees; ones who work hard, seize the opportunities for expansion, build big businesses and earn serious money. However, not every franchisee in the network will be turning over those kinds of figures, so you need to be asking, ‘what kind of money does you ‘average’ franchisee make?’ They will give you a more realistic insight into your earning potential.
Question: “How many franchisees do you lose a year and why?”
If the franchise you’re looking at is relatively new eg: 1-3 yrs old, it’s normal that a few early adopters, who maybe bought their territories at heavily discounted prices, might decide it’s not for them and move on. This should not necessarily put you off.
However, if a franchise has been established for over five years, and is losing large amounts of franchisees every year, this could signal problems. By this stage the franchisor should have their systems and support nailed down and their franchisees should be building solid businesses, not leaving in their droves.
Question: “What extra bills am I going to have to pay?”
All franchise agreements differ, what is included in one may be excluded in another, so always take a close look at what each package includes, however, it is worth asking what other costs you’ll be likely to incur. Some to look out for are accountancy/bookkeeping fees, health and safety certification, human resources support (when employing staff), use of company software and brand compliance purchases (eg buying fixtures and fittings for a shop/office).
Question: “When will I start to turn a true profit?”
Anyone buying a franchise will be told they need funds to support themselves as the business takes off and that’s absolutely true. However, what you want to ask the franchisor is, when will the business start supporting you, rather than the other way around? Ask existing franchisees how long it took for them to make a profit.
Question: “How much of my turnover will I have to spend on marketing?”
Many franchisors pay a franchisee’s marketing in the first year, but year two onwards and it is likely down to you. Experienced franchisors know that not spending enough on marketing is a sure-fire way to failure, so it is likely to be written into your franchise agreement that you must spend a percentage of your annual turnover on marketing. Failure to do so could leave you with a failing business and in breach of contract.
Following the meeting you should contact as many of their existing franchisees as possible (the ones they tell you to contact and even more importantly, the ones they don’t.) Ask them how well their businesses are doing, how much support they receive from the franchisor.
When you combine their responses with the information gained from asking your ‘Killer Questions’, you’ll have a good insight into the business and enough information to decide, is this a franchise you’d like to buy into and make a killing or will you walk away and escape a near death experience?