31 Questions to Ask When You're Buying a Franchise
"My wife and I are thinking about a franchise. We've met with the franchise executives at their 'Discovery Day,' and they seem like nice people.
"They're encouraging us to talk to some of their franchisees to understand exactly what goes on in the franchised business, but I confess I don't know what sorts of questions to ask. We've never owned a business before.
What information do I need to get from these franchisees so I can decide whether or not this franchise is worth buying?"
A franchise company (called the franchisor) is required by law to give you a franchise disclosure document (FDD) before you buy a franchise territory. The FDD contains two sections that are especially helpful in finding out how the current franchisees are doing.
Item 19 of the FDD contains performance statistics for the franchise's current franchisees, but there are two problems with Item 19. First, the Federal Trade Commission (which regulates franchises) does not require franchisors to fill out Item 19, so many don't. Second, franchisors have a lot of leeway to present their statistics any way they like, so many franchisors omit information about their new franchisees (less than two years in business) -- precisely the people you want to know about.
The more helpful part of the FDD appears at the very end of the document: a list of all current and former franchisees with telephone numbers so you can reach out to them and ask them about your experience. You should take advantage of that. In fact, you should speak to at least 10 of them (including all who are close to your proposed franchise territory), and don't be afraid to ask the same questions over and over again. In my experience, it's often the ninth or 10th person who will tell you a slightly different story than the others will.
Here are some of the questions I recommend my clients ask current franchisees:
1. How long did it take you to start the business and land your first customer?
2. How useful was the franchisor's training program?
3. Did you need additional training once you opened your doors and started dealing with customers?