Here’s how to conduct research on a franchise:
I’ll go into more detail in a minute.
A Powerful Model
The franchise business model, if leveraged properly, is amazing… and powerful. It’s been called the best business model ever invented. But if you end up choosing the wrong franchise, and you blow through all your money because you didn’t do the type of research needed to get all the facts, then owning “The best business model ever invented” won’t much matter.
But sadly, most people don’t know how to do franchise research. Real franchise research.
As a matter of fact, a lot of them aren’t doing even the most basic things.
- Using Google (and other free online resources) to get background information on the franchise company and its executives
- Doing market research on franchises
- Talking to and visiting existing franchisees
- Working with accountants
- Hiring franchise attorneys
Franchises Are Big Investments
All investments carry risk…franchises included.
Without exception, if you’re thinking about buying a franchise, and you want to lower your financial risk, there are 3 ways to do it.
- Only buy a franchise you can easily afford
- Choose the right franchise for you-and your geographical area
- Do thorough research
Let’s talk about #3.
Your Franchise Research
Research. It’s the most important part of buying a profitable franchise.
The franchise model is the only business model that enables you-the prospective franchise owner, to find out just about everything you need to know about the business, before you plunk down any of your hard-earned money. You just need to know how to get the information you need.
Case in point; you can call existing franchise owners (franchisees) of the franchise concept you’re looking into, and ask them questions that will give you the information you need. Specific information, including how much money they’re making as franchisees.
With that in mind, here are 15 great questions to ask franchisees that are guaranteed to get you to the heart of the matter.
But what about doing research on a brand-new franchise opportunity? How can I ask questions of franchisees if there aren’t any yet? This is how.
Another thing you need to do (as part of your due diligence) is to set aside a day to visit a franchisee in-person. That way you can see for yourself what “a day in the life” of a franchise owner consists of.
Now, let’s say you’ve used the research tips above, and the ones I’ve included in my Ebook. What’s next?
In this case, your next step is to find an attorney. But not just any attorney. A franchise attorney. The right franchise attorney.
Are you feeling overwhelmed?
I know it’s a lot to learn.
Check this out.
As a kid, I bet you couldn’t wait to learn how to ride a bicycle.
Notice I didn’t say you couldn’t wait to ride a bicycle.
I said that you couldn’t wait to learn how to ride a bicycle. That’s right. You were smart enough to know that you couldn’t just hop in a bike and start riding. Heck-there were only two wheels! You knew you’d fall right off. Unless you learned how to do it.
Unless someone taught you how to do it.
And once you learned…great things happened. (Even if you fell off a few times as you were learning)
That wonderful feeling of wind on your face. A little bit of freedom.
It was so worth it.
Suggested Read: The 10 Commandments of Franchise Research
Freedom, Franchises, And Bias
Speaking of freedom, isn’t having more of it one of the reasons you’re thinking about buying a franchise?
Of course it is. Of course you want to have more freedom (and more control) in your life.
But you can’t just go out and buy a franchise-and hope for the best. You have to do
good great research.
And while asking franchisees questions about the business is crucial, as you’ll see, there are other people you need to get information from. But before I get into that, a word of caution.
As you investigate franchises, you’re bound to run across websites that promise to supply you with “scientific research data” about specific franchise opportunities.
This data is collected from questionnaires sent to a small number of franchisees who are part of a specific franchise system.
If you’d like to see what franchisees say about the franchise system they’re a part of, you can. But here’s the thing:
The franchises on these websites pay to be there, as the companies behind these sites “consult” with them.
The same goes for franchise “review” websites. So there’s a certain amount of bias.
Given these points, you need to make sure you understand how websites that offer franchise research data and franchise reviews operate.
Finally, unless someone is willing to guarantee their findings, i.e. back them up with the entire upfront cost of the franchise you’re buying, you got nothing.
Franchise Development Representatives
Another person you need to ask questions of is the Franchise Development Representative of the franchise business you’re interested in. Check out the one below, as it’s one of 29 questions to ask Franchise Development Reps that I include in my eBook, “The Definitive Guide to Franchise Research.”
In this case, as with many of the other questions I supply, I provide an explanation of its importance, along with what to expect from them, answer-wise below the question.
Ask Your Franchise Sales Representative This Question:
“What kind of marketing are you, as a company, doing?”
This question is important.
That’s because you need to find out how they get to market, and how your franchise business will benefit from their proven marketing techniques and strategies.
FYI: Your rep may not give you specific information about their marketing techniques early-on.
Instead, they may wait until you’re further along in the process.
The reason: some franchisors hold their marketing techniques close to the vest-and rightly so. They don’t want the national or local competition stealing their ideas.
My advice is to roll with the punches if they’re reluctant to give you too much marketing information early in the process.
If you like their franchise offering, and they feel you’ll be a good fit, you’ll eventually get the information you need.
And remember, you’re going to talk with franchisees, too. Most of them will share marketing information with you…from both a national and local perspective.
Important! It’s not unusual for a franchisee to be required to pay into a national marketing fund. Specific costs will be spelled out in the actual franchise contract, but figure you’ll be paying anywhere from 1%-3% of your gross sales into the fund. So, if your franchise business is doing $500,000 in annual sales, and you’re required to pay 1% of your sales into the marketing fund, you’ll be writing checks totaling $5,000 to the franchisor, annually. That’s a lot of money.
That’s why, when you research franchises, you need to know about their marketing initiatives and their success.
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Franchising Research FAQ’s
Slowly and carefully. That includes asking franchise development representatives questions about their products/services, how the franchises get to market, and how they support their franchisees.
Yes! You need to contact franchisees, and ask them if they’re satisfied with their decision to buy the franchise and if they’re making good money.
At a minimum, you need to call 10-15 franchisees. And make sure you call franchisees in different geographical regions, so you can get a good feel of how the franchise is doing nationally.
If that’s the case, after you talk to the franchisees, you need to spend a few days at franchise headquarters, so you can see the operation in real-time and get to know the franchise team.