Buying a Franchise: Questions to Ask Franchisors
In his monthly newsletter, Joe Cooney of Frannet points out the categories and questions you should ask franchisors to provide a starting point in your due diligence process. Those categories and questions include:
1. Competitive Advantage of Product or Service
How is your system better than others? Who are your competitors? How does your business match up? Who are your suppliers? What are the prices of your products? Are your products priced fairly? Are there any restrictions with regard to products and services?
2. Time Tested, Standardized Franchise System
How long have you been franchising? How many franchise units do you operate? How many units have you closed in the last three years? How many units have been transferred or sold in the last three years? How many units do you plan to open over the next three years? What is the initial investment and what do we get for that? What are your fees? What earnings claims do you make? What improvements have you made to your system recently?
3. Strong Franchisor Support
How do you support franchisees? What is the initial training process? What support do you provide after the franchise is up and running? What will I hear from franchisees on this subject?
4. Financial Strength and Management Experience
Describe in layman's terms the financial strength of the franchise system. How much revenue comes from initial fees and how much from royalties? Is the franchise publicly traded and how has it performed?
5. Mutual Interest of Franchisor and Franchisee
How will franchisees describe their relationship with the franchisor? Supportive? Combative? Have there been any lawsuits or abritration proceedings? What was the issue and how did it end?
Remember this is only a start for the due diligence process. You should be sure to interview as many franchisees as possible in order to better understand the franchisor and its system.
Frannet is also offering free webinars on franchise opportunities in specific industries. If you have any questions about the webinars you can email Joe Cooney at jcooney@frannet.com.
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