Questions To Ask A Franchisor
Does the idea of being your own boss sound appealing? Maybe you’d like to own a low-risk business with the support of an established brand. For those looking to break out on their own, these benefits—and many more—underscore why you should start a franchise.
Of course, there’s a lot that goes into owning a franchise, and arming yourself with as much knowledge as possible is essential. Before signing a franchise agreement, it’s important to ask any and all of your questions to ensure you’re entering into a relationship you feel comfortable with.
In this article, we’ve laid out some of the most valuable questions you can ask a the franchisor of a franchise you are interested in, including:
- How do you evaluate a franchise for fit—for both you and the franchisor?
- What should you ask about financials?
- What questions are there about operations and support?
- Can you talk to current or past franchisees?
What Key Terms Do You Need to Know?
Before we begin discussing questions you should ask and what traits to look for in a franchise opportunity, it’s important to set a baseline for some important terms in the industry. Here are some common words and phrases you’ll hear throughout the process.
- Franchise: The term franchise can mean one of two things. First, franchise is often used to describe a business model where a parent company licenses its operations to local business owners. Well-known franchises include The UPS Store, 7-Eleven, Ace Hardware Corporation, McDonald’s, and more. While many of these are household names, there are franchises in almost every industry imaginable. Second, the term franchise can also refer to the license that a parent company grants to use their name and sell their goods or services.
- Franchisee: Franchisee is another name for the business owner who purchases the franchise license to operate a business.
- Franchisor: The parent company, or franchisor, is the business that grants a franchise to franchisees to operate with their name. What are 3 things that a franchisor often provides to the franchisee? Franchisors will provide an established business plan. They will also typically provide some level of training and support as well as access to marketing materials.
- Franchise Disclosure Document: A franchise disclosure document (FDD) is a legal document that franchisors must provide to potential franchisees as a part of the due diligence process. The FDD includes information such as a history of the franchisor, as well as their financial performance, any ongoing litigation, and many other items. This is all meant to provide all interested parties with as much information as possible.
- Franchise Agreement: A franchise agreement is a legal contract that creates and defines the business relationship between the franchisor and franchisee. The Federal Trade Commission (FTC) requires that franchise agreements include 23 key pieces of information, including the rights and responsibilities of both parties. Signing the franchise agreement is the final step in becoming an official franchisee, but it’s just the beginning of owning your own business!
How Do You Approach a Franchisor?
Once you’ve found a franchise you’re interested in, the next step is to get more information by reaching out and indicating your interest. While traditionally you may have had to scour the phonebook for a phone number or search online for an email address, Franchise.com makes the process simple.
Use our directory to locate the franchise you are interested in. For example, perhaps you’d like to get more information about Farmers Insurance®. Simply click the red “Get Free Info” button, add your name and contact information, and submit it. From there, you’ll receive more information about the franchise and will be provided with a direct connection to the franchisor.
What Do Franchisors Look for in a Franchisee, and Are You a Good Fit?
As you approach a franchisor and learn more about their business, it’s important to find out about what franchisors are looking for in a future successful franchisee. You should aim to ensure that you’re a good match for what they’re looking for and that their business is a good fit for you, too.
So what is a franchisor looking for? Franchisors generally have a list of features and traits in mind when seeking a new franchisee. For example, some franchisors may be seeking franchisees with experience in the industry or in management, while others will provide the baseline knowledge you need. Other common characteristics they may look for include:
- Capital: Do you have enough money to make your initial investment, or do you have a source of capital like a loan or a business partnership in mind? All of our Franchise.com listings make this information available. In fact, you can even sort by capital required!
- Commitment: Are you committed to their organization and the idea of running your own business—using an existing model and standards?
- Goal-Focused: Do you have short- or long-term goals aligned with the franchise?
- Team Player: Ultimately, franchisees must be able to work within an established business plan. Potential franchisees who want to be unique and innovative in their business plan may not work out.
How Can Prospective Franchisees Evaluate a Franchise Opportunity?
One of the best ways to evaluate a franchise opportunity is by asking questions. As a would-be franchisee, you’ve likely got several questions on your mind—and more may come up along the way as you learn more about the franchisor and review the franchise disclosure document. This is completely normal, but it’s essential you get answers to all of your questions before signing the franchise agreement.
Use the list below to help you develop a list of questions to ask your potential franchisor.
What Are Financial Questions to Ask When Buying a Franchise?
Some of your most pressing questions will likely be about finances, and these might include inquiries about your upfront investment as well as recurring fees or royalties. While many of these topics may be included in the franchise disclosure document, you should ask any additional or clarifying questions before making a firm decision one way or another.
- What is the total upfront investment required, and what does it include? Consider costs like the franchise fee, insurance, or any hardware or software programs you are required to purchase. This may also include costs associated with a brick-and-mortar store, like a lease, fixtures, equipment, supplies, and more.
- What ongoing or recurring costs are required? As a franchisee, you will be required to pay recurring royalty fees and possibly even advertising fees. Be sure you understand how much these fees will be, how they are calculated, and how frequently you will need to pay them.
- What is the company’s financial status? Franchisors are required to disclose their most recent financial statements in the franchise disclosure document. As you review the FDD, make note of any areas you’d like to seek further information on.
- What is my earning potential? Of course, no one can predict how much money you’ll make. But on the list of what to know before buying a franchise, your earning potential should be at the top. Most franchisors can provide information about the average amount of sales at a typical location. Be sure you understand if these are gross sales vs net sales. Gross sales are just that—how much money was made in sales. Net sales, on the other hand, takes that number and subtracts any operating costs, like rent, to show a more detailed picture of profits.
What Questions Should You Ask a Franchisor About Operations?
Next up, there are questions about the day-to-day work as well as big-picture planning. When you sign a franchise agreement, you’re agreeing to operate a business for somewhere between 5 to 20 years, so it's important to understand the franchisor from an operational perspective. Consider asking these types of questions.
- What information can the company share about their competitive market? Are there any new or existing big-name competitors, especially in the location you’ll be operating in? If so, are there any changes on the horizon to help the franchisor and franchisees remain competitive?
- How many locations are there? Be sure to understand how many locations there are—especially on the local level. If you’re operating a brick-and-mortar store, how close is the nearest franchisee? If you’re operating online, how many other franchisees are there?
- What is the company’s marketing strategy, and do local franchises benefit from it? You’ll most likely be required to pay a fee for local, regional, or national advertising. What is the strategy they use, how is marketing done in your region, and will you have an opportunity for input?
- What is the company culture like? What are the company values, and how do they play into day-to-day work? What methods do they use to measure success? How do they communicate with franchisees? Is the franchisor dedicated to diversity, equity, and inclusion? Ensure that the company culture meshes well with your personal and professional expectations.
What Are Good Questions to Ask a Franchisor About Training?
While some franchisors offer robust training and ongoing support, it’s certainly not a requirement that they do so. If you’re a potential franchisee who is looking for training and support as you open and run your business, it’s important to find a franchisor who will support you. Here are some questions you can ask to discover what kind of assistance you can expect.
- Does the company offer training? And if so, what are the costs—if any—and where is the training located? What is the typical duration of the training? Find out as much as you can about what you’ll be taught and who will be responsible for costs, including room and board accommodations.
- Beyond initial training, what supports are offered during the pre-opening or grand opening? How involved is the franchisor in the planning and preparation stages of opening, especially if you will be operating a brick-and-mortar store? Will they assist in the procurement of vendors or the installation of hardware and software?
- What kind of ongoing support can franchisees expect? Are there quarterly or annual meetings or conferences? Is there a franchise owner’s association or a franchise advisory council? Will you have ongoing access to a support team through the franchisor? Is on-site assistance available if necessary?
What Are Questions to Ask Franchisees Before Buying a Franchise?
In addition to asking questions of the franchisor, it can be helpful to set up conversations with existing or former franchisees to better understand what the day-to-day work is like. Franchisors are required to provide contact information for existing and past franchisees, and this can provide insight into the pros and cons of working with a particular franchisor. When interviewing existing franchisees, what is the most important question to ask? There are several, and here are a few of the most imperative.
- What is your background, and how long have you been in business with this franchise? This will give you an understanding of what their career trajectory has been.
- What is your relationship with the franchisor like? With this question, you should be able to understand how the franchisee feels about the franchisor. This might include both positives and negatives.
- How would you rate the franchisor’s training or marketing? Use a question like this to get an idea of how well a franchisor performs certain responsibilities they’ve agreed to do.
- Would you mind sharing any financial information? You may be able to ask about their gross or net revenue during the first few years of their business or even their expected annual revenue for the year.
Franchise.com: Here for You Every Step of the Way
Since 1995, Franchise.com has been the go-to place for franchisors and potential franchisees to connect. We pride ourselves on helping franchisees understand the world of franchising and offering resources and industry news to help you make the best decisions possible.
Ready to get started franchising? Begin by exploring our franchise directory and create a list of franchises that meet your budget and your interests. Compare offerings, do your research, and connect with franchisors to learn more. If you have any questions at all along the way, feel free to reach out to us.