Joel LibavaDo you know what questions to ask a franchisor?
If so, if you feel confident that you know exactly what questions you’re going to ask the Franchise Development Representative at headquarters, you can skip this post. Good on you.
But if you don’t know what franchisor questions you should be asking, or if you’ve only come up with a few, I encourage you to jot down the ones I’m sharing below. Better yet, bookmark this post now, so you can refer back to it as needed.
Because part of your decision on whether or not you’re going to buy a specific franchise will be based on the questions you ask headquarters and the answers you receive.
15 Questions To Ask A Franchisor
To reiterate, one crucial part of the franchise buying process is the ability to fire off some well-crafted franchisor questions to your rep at headquarters. Why?
Because these franchisor questions will be your secret weapon to gather all the necessary info and really get to know the ins and outs of the franchise opportunity. Here are the questions to ask:
1. What is the initial cost, and the ongoing fees and royalty payments? And how are they calculated?
Obviously, having a complete understanding of the financial commitment required is vital to assess the feasibility of the franchise opportunity and plan your budget effectively.
To be blunt, you quickly need to assess whether of not you can afford the franchise opportunity you’re thinking of buying.
Additionally, you’re going to need to know what your ongoing financial obligations are going to be for the life* of your franchise agreement (contract).
*On average, today’s franchise agreements have a term of 10 years.
The good news is once you determine your initial and ongoing costs, you’ll be able to plug them into your business plan and do some projections.
2. What type of support and training programs do you provide to franchisees?
In case you don’t know, comprehensive training and ongoing support are crucial for your success as a franchisee.
That’s why you need to inquire about the training programs, resources, and assistance available. You need to ensure you receive the necessary guidance. And don’t be afraid of asking for specifics.
3. Can you/will you provide information about the financial performance and profitability of existing franchise locations?
The answers you get here will vary from franchisor to franchisor. Why?
Because some franchisors provide Financial Performance Representations (FPR’s) while some don’t.
According to Thomas Pitegoff, an attorney at LeClaireRyan, “Franchise sellers may indeed provide information regarding earnings, but only if the franchisor discloses ‘financial performance representations’ (or FPRs) in Item 19 of the FDD.
If no FPRs appear in Item 19, then the seller must say nothing about prospective sales or earnings. To do so would violate the Federal Trade Commission’s Franchise Rule and potentially give rise to liability under Section 5 of the FTC Act as false or deceptive advertising. This requirement applies to franchise brokers as well as franchisors.”
That said, if you can get franchisee performance numbers from headquarters, great. It’s a start. But you’ll want to talk with a lot of existing franchisees to verify those numbers.
And if the franchisor doesn’t disclose franchisee financials, the franchisees will, as long as you approach them correctly.
Any Company Owned Units?
4. Do you operate any company-owned units?
You may not be aware of this, but some franchisors have company units.
That’s fine, but you need to understand that any numbers you get from those locations will be quite different than the numbers you receive from franchisees. Why?
Because company units don’t have royalties and/or marketing fees to pay out. It’s a huge difference.
5. Do you have any territory restrictions?
Understanding territorial rights will help you assess the potential market size and competition in your desired geographic location.
And once you find out what territories look like, you can use a resource like the SBDC to gather your all-important local market data.
6. What marketing and advertising support do you offer to franchisees?
The marketing and advertising support you get from your franchisor can significantly impact your ability to attract customers and build a strong brand presence.
That’s why you need to inquire about the marketing strategies, materials, and support the franchisor makes available to franchisees.
7. Are there any restrictions on purchasing products or services from specific suppliers? In other words, can franchisees buy their products/services from anyone?
Understanding any restrictions on suppliers is crucial to determine the flexibility and quality of the products or services you can offer as a franchisee.
With that being said, the majority of franchisors do require that you purchase products and services from approved suppliers…sometimes very specific ones. So find out how the franchisor rolls.
Bonus! Here are 15+ questions you need to ask franchisees.
Now let’s continue with my list of questions to ask a franchisor.
8. What are the renewal terms and conditions for the franchise agreement?
When it comes time to renew your franchise agreement, you’ll have some decisions to make. You can either renew your contract for another term, or sell your business. What will it be?
The good news is if you did things right at the beginning, meaning you had an exit plan, you’ll have no worries. Well, almost no worries. If you’re selling, you’ll need to find a buyer.
Conversely, if you didn’t have an exit plan put together as part of your strategy, you’ll need to make a decision on what to do. Of course there are pros and cons to both choices, so think things through.
On The Franchisee-Franchisor Relationship
9. How do you resolve disputes or conflicts between the franchisor and franchisees?
This franchisor question is important.
In a nutshell, if you know how to search forum-type websites, you’ll see what I mean, because there are lots of stories* on this topic.
*This website features several “interesting” franchisee-franchisor stories.
To that end, reading just a few of those stories will convince you to ask a strongly-worded question or two concerning how disputes are generally handled.
The bottom line?
Understanding how franchisee-franchisor conflicts get resolved ensures that you are aware of the mechanisms in place to address any issues that may arise during the time you are a franchise owner.
10. What is the long-term vision for the brand?
It’s important to know the franchisor’s long-term vision. Why?
Because doing so will give you an idea of the growth potential of your business along with future opportunities within the franchise system.
For example, are new products or services coming down the pike?
11. How many new franchises does the company want to add the system?
It’s important for you to know what the potential reach of the brand could be, long-term. Plus, you don’t want to buy a franchise that’s too aggressive in their sales goals. Why?
Because it could mean flooding your area with other franchisees.
Questions To Ask A Franchisor About Fit
12. What qualities do you look for in potential franchisees?
This is a great question to ask your Development person.
That’s because knowing the franchisor’s requirements and expectations for potential franchisees will help you evaluate whether you possess the necessary skills and attributes for success.
13. What are some of the backgrounds of your franchisees?
If you come from an engineering background, and a few of their franchisees do too, it may be a sign that you’re onto something.
Conversely, if the majority of franchise owners come from industries that are totally different than the one you’re coming from, you’ll need to take extra steps to determine if you’re a good fit for the opportunity.
14. How do you support franchisees in adapting to changing market trends or industry developments?
Inquiring about the franchisor’s approach to staying relevant and adapting to market changes will help you assess their commitment to supporting franchisees in always-changing business environments.
For example, the pandemic we experienced forced franchise businesses to change. The ones who couldn’t, struggled. Or worse.
15. What has the company been investing in, technology-wise?
Lots of franchisors brag (in a good way) about the technology they use, and how it helps franchisees run their businesses more effectively.
Case in point? Domino’s Pizza. And what they were able to accomplish during the height of the pandemic.
From Ritch Allison, CEO of Domino’s:
“We’ve moved to a 100% contactless delivery model across the country. We have made our contactless, drive-up/carry out technology available to all US stores. We have temporarily banned customers from sitting and eating in our stores. We’re asking our customers to practice social distancing when they visit us to pick up their carryout orders. Contactless delivery is the only type of delivery that we do in the US. We’ve actually made it mandatory across the country.“
And their technology paid off in a big way, as Domino’s franchisees were able to do a good deal of business during the pandemic.
So what’s my point?
Today’s franchisors must be aggressive in their technology spend.
Because great technology can be a game-changer. For the company, and for you, the franchisee.
To conclude, asking the right franchisor questions is crucial for making an informed decision on a franchise to own.
That means that every question outlined above should be asked, as well as every question I provide for you here.
Because I know you want to do everything right, so you can finally be your own boss and make money doing it.
Note: When you buy through links on this website, we may earn an affiliate commission. In addition, I've started to use AI to help me craft better article titles and headings.
