21 Powerful Questions to vet out a Franchise offering

Powerful questions to vet out a franchise offering

When most people think franchises they think McDonald’s. A global multinational brand which almost can’t fail. However, for much of the industry that is far from the case.

According to a recent IFA conference there are more than 2,000 active Franchise systems under 20 units and almost 3,000 Franchise systems under 50 units.

But how do you identify which of these emerging franchise systems will be the next Quiznos Sub or the next McDonald’s?

Keep these questions in mind when investigating a Franchise offering:

1. When was the business started? What year did you start franchising?

Longevity of the Franchise is a critical consideration. Is there a life cycle to the brand?

2. How many company owned stores does the Franchisor have?

Can the Franchisor operate their own stores successfully? Are they continuing to develop corporate units?

3. How many Franchisees do you have? Can I speak with your current Franchisees?

Ask the Franchisees about the economics of the business, support they receive from the Franchisor, and if they could do it over, would they purchase this Franchise again?

4. What is the total investment of the Franchise including working capital?

Is this Franchise in my budget? Does the potential ROI make sense? How long till I will be cash flow positive?

5. Is the Franchise SBA approved?

Know your financing options.

6. How many states is the Franchise in?

Is this a national? regional franchise?

7. What is your royalty and marketing fund?

Know your numbers before you sign on the dotted line.

8. Describe the concept.

What is the core competency of the business?

9. Describe your industry.

What industry are you in? What are the trends? What are the current conditions?

10.Who is your competition?

Learn what the competition is doing and why they are doing it.

11. What are the brand differentiators and what are the competitive advantages of your product/service?

What makes this brand better than the competition?

12. Is there an Earnings claim in item 19 of the FDD?

I would strongly caution purchasing a Franchise without an item 19. What are average sales? COGS? Can this business flat out make money?

13. Please describe the backgrounds and skill sets of your most successful Franchise owners.

Do these Franchise owners sound like me? Is there an assessment I can take?

14 Describe the typical day of a franchise owner.

Could I do this work day after day?

15. How many and what type of employees do you need? Are any certifications needed?

What challenges may I face from an employment standpoint?

16. Who is the customer/demographic of your Franchise?

Franchises must understand their demographic when selecting real estate & marketing vehicles.

17. What is the protected territory radius?

Am I comfortable with my radius? Do I feel neighboring franchisees will cannibalize sales?

18. Describe the typical location. What challenges do you face finding this real estate?

Location, Location, Location! Does the Franchisor help me find this real estate?

19. What is the management teams backgrounds and strengths?

Who am I going into business with? Are they qualified to lead a Franchise system?

20. What are the typical objections of prospective franchisees?

Am I missing something?

21. Can I see the FDD?

The FDD (Franchise Disclosure Document) is a standard format document which allows you to learn more about the Franchisor. I would recommend reviewing the FDD with a Franchise attorney.

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Ryan Rao is a Principal of Apex Franchise Development Group and is a franchise development expert who has grown multiple franchise based businesses into national and international brands. Franchising has allowed him to help individuals realize their dreams of business ownership, while permitting them to experience the independence, flexibility, and freedom that comes with being a business owner. He also serves as a franchise consultant, and is a personal growth advocate.

Follow or Connect with Ryan on LinkedIn at https://www.linkedin.com/in/ryan-rao/

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