A critical step in the process of buying a franchise is a comprehensive due diligence examination to ensure you are making an informed decision before entering into an agreement. Below is an in-depth list of questions for interviewing a prospective franchisor during the research process.

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Top 16 Questions to Ask When Interviewing Franchisors:

1. How did the franchise get started and what is the background of your executives? Who were the founders? What was their motivation for starting the business? Do you possess similar skill sets and a passion for the industry? Finding the perfect match requires not only that you feel the franchisor has adequate experience, but that you identify with the fundamentals of the business.
2. What are your criteria for choosing a franchisee?  Franchisors typically have a list of qualifications and personality traits that fit best with their brand. It&#;s important to investigate those criteria and determine whether you feel your personality and skill set fit within the system.
3. How much do I have to invest before I can open my doors? The initial investment for starting a franchise can vary from a few thousand dollars to more than a million. Item 5 of the Franchise Disclosure Document (FDD) lists the initial franchise fee, and Item 7 details additional start-up costs such as real estate, equipment, licenses, etc. Be sure to discuss these items in depth with the franchisor so that you have a clear understanding of your investment and what you will need financially to get up and running.
4. How much liquid capital will I need to maintain to cover the franchise until it breaks even?  Aside from the initial start-up costs, franchisees need enough operating capital for the first several months until the business breaks even, so it&#;s important to find out the average amount of time it takes most franchisees to start turning a profit so that you can be financially prepared.
5. What are the ongoing fees? How do your royalties and marketing fees work? Take the time to understand your ongoing financial obligations to the franchisor including whether or not you are obligated to pay royalty or other ongoing fees such as for advertising. Understanding this is essential for managing the financial health of your business.
6. How financially strong is the franchise company? A franchisor&#;s most recent financial statements can be found in Item 21 of the FDD and can give you an indication of the franchise system&#;s financial picture. Ask the franchisor to explain how they have shown steady growth and about their future plans for growth. You&#;ll also want to explore whether the bulk of their income comes from royalties or the sale of franchises, and whether the franchisor designates an adequate amount of funds to the system.
7. How many other locations are there and what is your success rate? The number of units a franchisor has determines their size but not necessarily their success. Are the franchisees receiving ample support? A large franchisor may be spread too thin while an up and coming franchisor may not have enough resources. Ask what the success rate is among their franchisees and what the reasons are for failed units.
8. How much money can I make? Though a franchisor can&#;t predict your individual success, they should have a good idea about what a typical franchisee earns and your income potential. Be aware that the franchisor may offer information regarding gross sales which don&#;t include expenses for rent and other operating costs.
9. What sets you apart from your competitors?  While the market for some brands is highly competitive and saturated, others are more innovative and unique. Where does the brand fall along the spectrum? What is the level of competition in the market and who are the top competitors? Ask the franchisor about their unique selling points and their advantages over the competition.
10. What support do you offer beyond the initial training?  Most franchisors offer initial training to get your business up and running, but you&#;ll want to find out what kind of ongoing support is available and how it compares to what similar franchisors offer. What support staff will be accessible to you on a day-to-day basis? Are there ongoing training opportunities? Is on-site assistance available? Make sure you feel comfortable with the level of support that will be available to you after you open your doors.
11. How do you resolve disagreements or disputes? An important part of due diligence is investigating the franchisor&#;s litigation history. Item 3 of the FDD discloses information regarding legal action involving the franchisor and its officers. A large number of claims could indicate that the franchisor has a history of not adhering to the franchise agreement. Ask the franchisor about their process for handling disputes with franchisees as well as the reasons your franchise agreement could be terminated if you fail to uphold your end of the contract.
12. What are your expectations of your franchise owners? As a franchisee there are many expectations placed on you regarding payments, operations and other obligations per the franchise agreement. It&#;s important to have a discussion with the franchisor to gain a clear understanding surrounding what is required of you as a unit operator.
13. What will my territory be and how will it be protected? Learn how the franchisor manages territories for its franchisees and what rights you have under the agreement. Does the franchisor reserve the right to approve the location of your franchise? Will you have an exclusive or protected territory? Knowing whether you will be protected from competing units can have an impact on your success.
14. What kind of input will I have in marketing and advertising? You will likely be obligated to contribute to a local, regional and/or national advertising fund as part of your agreement. Ask the franchisor if you will have any say in how that money is spent and what opportunities there are for marketing in your local area.
15. What is a typical day like for a franchisee? Learning about the day-to-day tasks and goals for a typical franchisee can help you get a clear picture of your daily work life. In addition, it&#;s important to ask about the greatest challenges most franchisees face to help you decide whether the franchise opportunity will be a good fit for you.
16. Can I speak with current franchisees about their experience? This is a critical part of the due diligence investigation. Franchisors are required to disclose the contact information for both current and past franchisees. Speaking with both can give you an honest perspective on how the franchise system operates and its pros and cons. Be very cautious of any franchisor who tries to discourage you from reaching out to other operators.

Every franchise is different and it&#;s important to know exactly what you&#;re buying into. A thorough investigation should cover all aspects of the franchise system and include information from the franchisor, past and present franchisees, and third-party sources. Download our free &#;Minimizing Risk&#; e-book for more ways to mitigate your risks when buying a franchise.

Wondering About the Right Questions to Ask Franchisees?

It&#;s also important to seek out some existing franchisees to talk to before investing in any franchise system. You should never go into an investment blind, so we recommend checking out these top questions for franchisees.

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Franchising is a great way for first-time business owners to hit the ground running with an effective business model. And with recent tax reforms, deregulation, and a steadily growing economy, the franchise industry is set to build on its momentum and grow for the eighth year in a row. But with thousands of franchisors to choose from, finding the right one for you takes research and due diligence.

Thankfully, it&#;s not hard to find the information you need. Franchisors reveal a lot about their business through the Franchise Disclosure Document (FDD), but there&#;s another piece of the research puzzle just as important for you to dig into: the existing and former franchisees themselves. After all, these are the people who run the business day in and day out.

Speaking with current and former franchisees is a great way to get a more personal perspective into the business. 

Once you&#;ve narrowed your options to a handful of potential businesses, make a list of people to reach out to along with the questions you&#;ll be asking them. This guide will show you where to look inside your FDD (which you&#;ll receive from the franchisor) to find the names of current franchisees as well as ten important questions you should be sure to ask.

Using Item 20 of the FDD to get in touch with franchisees

The FDD is a long booklet giving you important information about the franchise system and the agreements included. An FDD is broken into 23 &#;Items&#; which are like chapters in a book. Item 20 of the FDD provides a list of the current and former franchisees for any given company. This is an important resource you should use to get in touch with current or former franchisees.

Read Also: 5 Key Items in the Franchise Disclosure Document

While picking up the is the best way to reach out, you may want to arrange a time to sit down and discuss your questions more in-depth. In these cases, it may be more useful to reach out via or through the professional networking platform LinkedIn to introduce yourself and set up a more formal time to discuss the business.

Whichever way you feel most comfortable reaching out, there are a number of key questions that can help you get a more complete picture of what it&#;s like to be a franchisee. Specifically, you&#;ll want to find out:

• If franchisees are happy with the income level they&#;ve been able to achieve through the business
• How much support they&#;ve needed from the franchisor and how well those requests were handled
• How operating the business fits into their daily life, and
• If they&#;re happy with the overall investment they&#;ve made

Read Also: When Will My New Franchise Become Profitable?

What kind of questions should I ask franchisees?

To help you get started, we&#;ve made a list of 10 core questions you should be asking franchisees. Depending on the business and your interests as a business owner, feel free to ask these questions however you&#;d like and add as many to the list as you feel are necessary. The bottom line is finding out how happy they are as a franchisee with this particular franchisor. Ask them to describe their overall level of satisfaction as well as specific parts of the business they feel strongly about.

THE MIDI. are exported all over the world and different industries with quality first. Our belief is to provide our customers with more and better high value-added products. Let's create a better future together.

1. What is their personal business background? What kind of education, experience and skills did they have prior to purchasing their franchise, and what specifically has helped them be a better franchisee? In general, it&#;s a very good sign if people from different backgrounds are able to succeed with the same franchise. Most people who buy a franchise don&#;t have direct prior experience in their new franchise&#;s field. This question can be helpful in confirming how easy it is to be successful no matter where you come from.

 

2. Is the franchisor being honest when estimating the amount of money needed to operate the business in the beginning? When discussing the opportunity with a franchisor, you&#;ll be given startup costs. Asking if these costs were more or less accurate as far as what other franchisees actually spent can be helpful when determining how much you should trust the estimate given and expect to spend setting up the business.

3. About how long did it take for them to see a return on their investment? Get a sense of how long franchisees were able to make a return on their initial investment and become cash flow positive. While there are a lot of factors that play into this, such as whether or not you decide to hire staff immediately, this can give you a general sense of how long it will take to recover your initial costs and prepare for profitability.

4. Did the franchisor provide enough training and support to get them started right away? Answers to this question will give you a sense of how well the franchisor&#;s training will likely prepare you in your own business. Note anything franchisees mention as things they would have wished they&#;d known or learned ahead of time and come prepared to discuss those items during your training.

5. How much competition for business do they experience in their local market? While franchisors ensure they don&#;t allow multiple franchisees to fight for business in the same area, it&#;s important to know if other similar businesses affect current franchisees and to what degree.

6. Were there any unexpected costs that put a drag on growth from week-to-week or month-to-month? Current franchisees can help you anticipate things you might not be expecting, so it&#;s always good to ask about any surprises they&#;ve encountered, both good and bad. This particular question can help you identify any potential hiccups down the road you might not be aware of otherwise and prepare for it accordingly.

7. Are they satisfied with the size of their territory? This question can help you compare your own territory to the size of others to understand whether you should think bigger, smaller, or are right where you need to be.

8. How much time do they have to devote to daily operations versus growing their business with marketing, advertising and new employee training? This is a specific question that helps you understand something more general: time management. Get a sense for how franchisees find themselves breaking down their time when working on and in their business and how much time each core task typically demands. This is another area where you may find surprises that you&#;ll be well-prepared for after getting a franchisee&#;s firsthand perspective.

9. If they had it to do over again, would they buy the franchise again or choose a different opportunity? Hopefully most franchisees will answer this by saying they wished they&#;d only started sooner. This is obviously an important question for anyone considering a particular franchise. Be sure to have franchisees not only answer it, but try to explain why.

10. If they&#;ve been established for long enough to start seeing profit, have their earnings met their expectations? (Be aware that some people may be uncomfortable discussing this.) This is question is most appropriate for those who&#;ve had their franchise a while. If they&#;re comfortable talking about their financials, understand what their timeline looked like from starting the business, to recovering costs, to profitability. This can help you chart your own path and set general expectations.

Think of this as a list of starter questions to build on and don&#;t be scared to reach out. Most franchisees have these conversations somewhat often and probably did the same thing themselves. More often than not, they&#;ve been in your shoes as a buyer before, and they&#;ll be glad to help you.

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