The franchisor has told you how the franchise is supposed to work.
Existing franchisees can tell you how it actually works.
That distinction matters.
A franchise salesperson may show you polished marketing materials, impressive revenue numbers, and stories from successful owners. The Franchise Disclosure Document (FDD) may provide hundreds of pages of information about the system. Your accountant may prepare a detailed financial model.
All of that information is valuable. But none of it replaces a candid conversation with someone who has already invested the money, opened the business, hired the employees, paid the royalties, and worked with the franchisor when problems arose.
Existing and former franchisees may be your best source of real-world information about a franchise opportunity. The Federal Trade Commission advises prospective buyers to use the contact information in Item 20 of the Franchise Disclosure Document and speak with as many franchisees as possible. The FTC describes those conversations as potentially the most reliable way to get the straight story about the franchisor’s claims.
Do not settle for asking whether franchisees are happy.
Ask questions that help you understand the economics, demands, risks, and reality of owning the business.
Do Not Speak Only With the Franchisor’s Preferred Franchisees
The franchisor may provide a short list of owners who are willing to speak with prospective buyers. Those franchisees may be successful, supportive of the system, and helpful.
Speak with them.
But do not stop there.
Item 20 of the FDD should provide contact information for current franchisees and certain former franchisees. Select some of those owners independently. Try to speak with franchisees in different markets and at different stages of development.
Your conversations should include:
- A relatively new franchisee who recently completed training and opened a location
- An established franchisee who has operated for several years
- A franchisee in a market similar to yours
- A franchisee who owns only one location
- A multi-unit franchisee, if you are considering developing several locations
- A former franchisee who left the system
The goal is not to find one franchisee who confirms what you already want to believe. The goal is to identify patterns.
Here are 11 questions that can help you do that.
1. Why Did You Choose This Franchise?
Begin with the franchisee’s original decision.
What attracted the owner to the brand? Did the franchisee compare several concepts? Was the decision based on the business model, the industry, the franchisor’s leadership, the expected financial return, or the strength of the sales presentation?
Then ask whether the reasons that persuaded the franchisee to buy proved accurate.
This question helps you understand the franchisee’s expectations and whether those expectations were fulfilled. It may also reveal whether the franchisee performed meaningful due diligence or simply fell in love with the concept.
Listen carefully if the franchisee says:
“I trusted the salesperson.”
“I thought the brand would generate customers automatically.”
“I did not speak with many franchisees before signing.”
Those answers do not necessarily mean the franchise is a poor investment. They may, however, show you where another buyer made assumptions that should have been tested.
2. What Was Your Actual Cost to Open?
Item 7 of the FDD provides the franchisor’s estimate of the initial investment. It may include the franchise fee, equipment, leasehold improvements, deposits, opening inventory, training expenses, professional fees, and additional funds for the initial operating period.
Those numbers are estimates.
Ask the franchisee whether the actual cost fell within the Item 7 range. If not, find out why.
Were construction costs higher than expected? Did permitting take longer? Did the landlord require additional improvements? Did the franchisor change equipment specifications? Were training and travel expenses underestimated? Did the franchisee need more working capital than the FDD projected?
Opening overruns are particularly important because they affect the business before it generates meaningful revenue. A buyer who expects to invest $500,000 but ultimately needs $650,000 may begin operations with more debt and less available cash than planned.
Ask for categories and ranges if the franchisee is uncomfortable providing exact numbers. You are trying to understand where the surprises occurred, not audit the owner’s financial records.
3. How Long Did It Take to Reach Break Even?
This question sounds simple, but you must define what break even means.
Some owners mean the business could pay its operating expenses. Others mean it produced enough cash to cover operating expenses and loan payments. Still others may consider the business profitable even though the owner works full time without receiving a market salary.
Ask the franchisee to explain the definition being used.
Then ask:
How long did it take for monthly revenue to cover operating expenses?
When did the business begin covering debt service?
When could the owner begin taking reasonable compensation or distributions?
How much additional working capital was needed before that happened?
A business may technically reach operating break even while the owner continues funding loan payments, taxes, equipment purchases, and personal living expenses from other sources.
Compare these answers with the assumptions in the franchisor’s Item 19 disclosures and your own financial model. If several franchisees took much longer to reach break even than the model projects, the model needs to be reconsidered.
4. What Expenses Were Higher Than You Expected?
Revenue attracts attention. Expenses determine whether the owner makes money.
Ask which costs surprised the franchisee after opening. Common examples may include labor, insurance, rent, utilities, local marketing, technology fees, repairs, supplies, credit card charges, delivery costs, waste, and required vendor purchases.
Pay particular attention to expenses that are difficult for the franchisee to control.
A franchisee may be required to purchase products from the franchisor, an affiliate, or an approved supplier. The franchise agreement may allow the franchisor to change operating standards, introduce new technology, or require additional products and services.
Ask whether those costs have increased and whether the franchisee believes the value received justifies the expense.
One unexpected cost may be manageable. A pattern of increasing mandatory expenses can materially alter the financial model.
5. Does the Business Generate a Fair Return After Accounting for Your Time?
Do not ask only, “Are you profitable?”
Profitability can mean different things to different owners.
A franchisee may report a $120,000 annual profit while working 60 hours each week managing the location. If hiring a qualified manager would cost $80,000, the owner may be receiving only $40,000 as a return on the capital invested and risk assumed.
Ask:
How many hours do you work each week?
What responsibilities do you personally perform?
Could the business afford to hire someone to replace you?
Would the location remain profitable after paying that person a market salary?
Does the business provide a return on your investment in addition to compensation for your labor?
There is nothing inherently wrong with buying a business that provides the owner with meaningful employment. But a buyer should understand whether the franchise is creating an investment return or primarily buying the owner a demanding job.
For a deeper financial analysis, see Can You Really Make Money With This Franchise? How to Test the Financial Model.
6. How Effective Were the Training and Opening Support?
The FDD describes the training and assistance the franchisor is contractually obligated to provide. The franchisees can tell you whether that support was useful in practice.
Ask whether the training prepared the owner to operate the business. Was enough time spent on hiring, scheduling, financial management, marketing, technology, customer service, and compliance? Did the franchisee leave training with a working understanding of the business?
Then ask about opening support.
Did representatives from the franchisor arrive when promised? Were they experienced? Did they help solve problems? Did the franchisor remain engaged after the initial opening period ended?
New franchisees are especially helpful on this issue because they have recently completed the current training program. An owner who opened ten years ago may have experienced a very different program and management team.
Training cannot eliminate every challenge. It should, however, prepare an attentive owner to handle the foreseeable demands of the business.
7. What Ongoing Support Does the Franchisor Actually Provide?
Many franchisors promise ongoing support. That phrase can mean almost anything.
Ask franchisees what happens when they call with an operational problem. Does the franchisor respond promptly? Does the field representative understand the business? Does the franchisee receive practical assistance or simply a reminder to follow the operating manual?
Ask about the franchisor’s communication style.
Does leadership listen to franchisee concerns? Are changes explained before they are implemented? Does the franchisor seek franchisee input? Are high-performing and struggling franchisees treated fairly? Does the franchisor help diagnose problems, or does it immediately blame the operator?
The quality of the relationship may become most important when the business is struggling. Almost every franchisor is supportive during the sales process. The better question is how the franchisor behaves after the agreement has been signed and the initial franchise fee has been paid.
8. Does the Marketing Produce Customers?
Franchisees often pay both a national advertising contribution and a required amount for local marketing. Those payments reduce the money available to the owner, so determine whether they generate value.
Ask:
What marketing does the franchisor provide?
Does national advertising generate measurable customer demand?
How much must the franchisee spend locally?
Which local marketing strategies actually work?
Does the franchisor provide useful materials and guidance?
Are franchisees allowed to develop their own local campaigns?
Does the franchisee believe the advertising fund is being used effectively?
A recognizable brand does not guarantee that customers will appear at a new location. In some systems, franchisees must build local demand through networking, community involvement, digital advertising, sales calls, or direct outreach.
You need to understand who is responsible for generating customers and how much additional time and money that requires.
9. What Are the Biggest Operational and Employee Challenges?
Every business has difficulties. You are trying to determine whether the challenges are manageable and whether they fit your skills and temperament.
Ask franchisees about hiring, turnover, scheduling, inventory, vendors, customer complaints, technology, seasonality, and regulatory requirements.
If the business depends on hourly employees, ask how difficult it is to recruit and retain them. If it relies on skilled technicians or licensed professionals, ask whether qualified workers are available in the franchisee’s market.
Ask what the franchisee spends the most time worrying about.
The answer may reveal more than a broad question about satisfaction. It helps you see the daily reality of operating the franchise.
A business may be financially attractive but still be a poor personal fit. A buyer who dislikes managing employees should think carefully before purchasing a labor-intensive concept. A buyer who expects passive ownership should be cautious if every successful franchisee works inside the business full time.
10. How Has the Franchise Changed Since You Joined?
The franchise agreement usually gives the franchisor significant control over operating standards. Those standards may change during a long-term relationship.
Ask established franchisees what has changed since they joined the system.
Have required products or vendors changed? Have technology fees increased? Has the franchisor imposed new remodeling requirements? Has the quality of support improved or declined? Has ownership or senior leadership changed? Has the franchisor continued selling locations in markets where existing franchisees are struggling?
Change is not necessarily bad. Strong franchise systems must adapt to customer preferences, competition, technology, and economic conditions.
The issue is how changes are made, who bears the cost, and whether those changes improve the franchisee’s business.
Ask whether the franchisee believes the franchisor’s interests remain aligned with the success of existing owners. A system that depends primarily on healthy royalty revenue from successful franchisees may behave differently from one focused mainly on selling new franchises.
11. Knowing What You Know Now, Would You Buy This Franchise Again?
This is the question that brings everything together.
Do not accept a one-word answer.
If the franchisee says yes, ask why. What has made the investment worthwhile? What would the owner do differently? What traits does a successful franchisee need?
If the answer is no, ask what changed the owner’s view. Was the problem financial performance, workload, franchisor support, required expenses, market conditions, or a mismatch between the business and the owner?
Some franchisees may say they would buy again, but only at a lower investment, with more working capital, in a different location, or with a different understanding of the time commitment.
Those qualifications matter.
This question does not produce a final verdict on the franchise. Even a strong system will have dissatisfied owners, and even a weak system may have exceptional performers. But when several franchisees independently give you the same warning, pay attention.
Speak With Former Franchisees Too
Current franchisees may be reluctant to criticize the franchisor. They remain dependent on the system and may be concerned about damaging the relationship.
Former franchisees may be more candid.
Item 20 should identify certain franchisees who recently left the system. Ask why they left. Did they sell successfully, retire, close the business, lose the franchise, or reach an agreement with the franchisor?
Ask whether the business was profitable, whether the franchisor provided adequate support, and what the former owner wishes had been understood before signing.
A former franchisee may have left because of poor management, insufficient capital, or personal circumstances unrelated to the franchise system. Do not assume every failed location proves the concept is flawed.
But do not dismiss former owners as merely disgruntled either.
Listen for facts. Compare their experiences with the FDD, the franchise agreement, and what current franchisees tell you.
Look for Patterns, Not Perfect Agreement
You are unlikely to receive identical answers.
One owner may praise the training while another considers it inadequate. One may be highly profitable while another struggles. Markets, locations, financing, management ability, and owner involvement can produce very different outcomes within the same system.
Your job is to determine why the results differ.
After each conversation, record the answers while they are fresh. Then compare what you heard across the system.
Look for recurring themes involving:
- Opening costs
- Time to break even
- Working capital
- Labor requirements
- Mandatory expenses
- Marketing effectiveness
- Franchisor responsiveness
- Owner workload
- Profitability
- Franchisee satisfaction
If several owners identify the same issue, incorporate it into your decision and financial model.
If the franchisor’s representatives made an oral statement that appears inconsistent with what franchisees report, return to the FDD and ask for clarification in writing. Do not rely on oral promises that are not supported by the written documents.
Make Franchise Validation Part of a Larger Review
Franchisee interviews are essential, but they are only one part of the investigation.
You should also review the FDD, analyze the franchise agreement, test the financial model, investigate the local market, understand the financing, and determine whether the business fits your skills and goals.
Your franchise attorney and accountant have different roles in that process.
The attorney can identify the legal obligations and risks involving fees, territory, suppliers, defaults, termination, renewal, transfer restrictions, personal guarantees, and post-termination obligations.
The accountant can test the projected revenue, expenses, working capital, debt service, taxes, and return on investment.
Existing and former franchisees provide the operating experience that helps both professionals test the assumptions behind the opportunity.
For a broader framework, see Franchise Due Diligence: The Questions Every Buyer Should Ask Before Signing.
Do Not Ask Whether They Like It. Find Out Why.
A prospective franchise buyer often asks an existing owner, “Do you like the franchise?”
That question is too easy to answer and too vague to be useful.
Ask what the business cost to open. Ask how long it took to break even. Ask how much the owner works. Ask what expenses were underestimated. Ask whether the franchisor provides meaningful support. Ask whether the business can pay a manager and still produce a fair return.
Then ask whether the owner would make the same investment again.
The franchisor has told you how the franchise is supposed to work.
Before you sign the agreement and guarantee the debt, find out how it actually works.
Do not search for reassurance.
Search for the truth.
ABOUT THE AUTHOR
Rush Nigut is a franchise attorney with more than 30 years of experience representing franchisees, franchise buyers, and business owners. He helps prospective franchisees evaluate Franchise Disclosure Documents (FDDs), negotiate franchise agreements, and protect their investment before they sign. His mission at Rush on Business is to help entrepreneurs make smarter franchise decisions through practical legal and business insights.