The first thing you need to do is to go online and fill the qualification form. After you have done this, you need to arrange for a call with the franchisor. Here the communication will move from one-way email to two-way communications where you ask questions.
Sincerity is the key to a successful business relationship. Do you find the franchise sales representative genuine? Are they helping you achieve your goals? They should be a successful professional who has your best interests at heart.
What should you ask the franchisor?
1. Possible Income – Income potential is a great and common question to ask. However, it is not always possible to give a satisfactory answer due to various things, including legal factors. The FDD or Franchise Disclosure Document gives “Financial Performance Representations in a segment called item 19. The percentage of franchisors who reveal their RPS has continued to rise for the past decade. In 2016, 66% of franchisors provided their FPRs, although the data provided differed significantly across different brands. You need to talk to franchisees to get the numbers required to create your business plan or the pro forma. The two things you need to have in mind is;
● Most businesses do not make a profit in the first year
● Results may differ from one unit to the other according to the owner, the economy, or the location.
2. What is in item 19? You need to know as many details as possible. When considering the gross revenue, are the expenses included? (Note: It is not easy for a franchisor to estimate the net profit because each franchisee franchisees works as an individual operator )
3. Is it possible to achieve targeted success? The primary reason you want to purchase a franchise is to achieve your personal and business goals. Therefore, you need to create a list of your top priority targets. One question you should ask yourself is. Do you want to hire a manager or operate the business yourself? Some franchisors demand personal involvement for the first time for those who buy single units.
4. Do your values match? – All franchise businesses have a set of values that governs the operations of the business. Different brands have different cultures, and you also have your values. Therefore, your values should align with those of the
franchisor. You should not struggle to act according to the franchisor’s beliefs. Instead, you should work with people with whom you share common values.
5. How can I finance the business? –Does the franchisor assist in obtaining finance? If yes- Do they have preferred lenders they can recommend? Does the SBA register the company? Where do their existing franchisees get capital to start and grow their businesses?
6. Do you offer any deals or financial incentives? – Most franchisors provide veterans, the disadvantaged, and minorities on the franchise charges. They also reduce their monthly royalties, which helps their business to grow. Some franchisors also offer special deals on specific geographical areas they are planning to expand their business. During the Great Recession, most franchisors provided limited-time offers, including reduced or free royalties for 6-24 months. Some even didn’t change the franchise fee, while others offer discounts for those who want to have additional units. There were still those who offered money-back guarantees.
7. How do you solve disputes or disagreements? – Does the franchisor involve lawyers to check the terms in the Franchise Agreement, or is someone always ready to listen and solve issues with the franchisee? Does the company have many franchise court cases? Misunderstandings are prevalent and are likely to occur in any organization. The franchisor should be ready to handle them in the best way possible when they happen. The way they handle disputes should indicate how much they value great business relationships with the franchisees.
8. Is there a Franchise Advisory committee? Commonly refers to several franchisees who represent the wellbeing of the franchisees. The best franchisors get ideas from these groups. They also help franchisors to build great relationships between them and the franchisee.
9. What territories are available in my location?- Where do you want to set up the business? Would you like to establish it in the neighborhood or town? When building a successful business, you need to have a connection with the local community. Building relationships with customers and will also help you in the hiring process. Franchisors recommend franchisees get involved in community affairs to build brand awareness as well as goodwill.
10. Can you help me identify a good location? –When starting any retail business, the first thing you need to think of is the location. Franchisors can be very helpful if you are unsure of the best site since they have experience with the best location to set up a successful business. Apart from their experience, most of them have robust software tools or an outside partner who can help them determine the suitability of a location regarding business.
11. Can you help me to negotiate with a leaser?- Rent is one of the most significant recurring expenses for retail franchises. Leases are a bit complex since most
landlords may take advantage of new business startups. If the franchisor can help you negotiate the lease terms, this may help you save some money in the long run.
12. How long should I wait before I open?- Does the lag from the time I sign the franchise agreement up to the time I open the business suit your plans. Can your finances support the franchisee partners you have? What if you don’t find a suitable location? Can you claim your franchise money back?
13. Do you provide a starter kit? – Some franchisors provide detailed information about their brand, which allows new business owners to continue with their full-time job for some time. Others provide a reduced model, allowing new franchisees to try the brand before fully committing themselves.
14. Who will support me? You may need daily support from a franchisor’s representative, especially when starting the business. You also need field support staff to offer guidance at all levels and stages of your business development. Therefore, you need to confirm that you can get the necessary support from the brand representative or staff any time you may need help.
15. Do you offer grand opening support? The first day in the business should be memorable. You need to get maximum support when launching your business. The type of support you may need include advance marketing and advertising, corporate personnel, promotional materials, TV, Radio, and Print media advertisements, public relations campaign, opening day discounts and giveaways, or even funding.
16. How is your training program? Because you are purchasing an established business, you need to know how the company conducts its training. Proper training may boost the performance of your business. The training may involve different areas such as making a sub, cleaning houses, or even shipping or sending packages. The employees should also learn to train or hire other employees, have essential financial management, and be team leaders.
17. How do your marketing fees and royalties work? Some franchisors receive royalties every month (mostly 4-8%) of the gross income, while others have a fixed fee structure that allows franchisees to make more profits. Some franchisors also collect a marketing fund which is usually 1-2% of the gross revenue. Generally used for marketing the business across the region and also nationwide.
18. What is the exit strategy- Even when you are just starting, experts recommend you also think of the possibilities of ending the partnership. You need to think of where you want to be in the next 5, 10, 15, or 20 years. If your franchise business succeeds, would you like your children to continue with it, or would you prefer to sell it? Can the franchisor purchase it back? Does the franchisor have a right of first refusal? Can they help you to sell the business at any point?
19. How long will I wait before is start making money?- If you are working under a well-established brand and have identified a suitable location, you shouldn’t struggle so much to establish your business.
When you purchase a franchise, it’s not just an investment; it’s an asset. Asking questions to potential franchisor happens to be one of the essential elements of forming a relationship. What are the most important questions to you ask before you buy a franchise? A franchise can help you fulfill your dr