10 questions to ask a franchisor before you buy a franchise
Buying a franchise is a big commitment so you want to be confident that you are making the right choice, especially if it’s your first time. You may have spent hours researching the business but a crucial stage of the process is questioning the franchisor at the interview stage. This is your chance to find out as much as possible about them and their franchise.
Don’t be afraid to ask difficult questions – the franchisor should be as open and honest as possible. If you find they are reluctant to answer questions or unwilling to provide information then you should think twice about whether you really want to start a business relationship with someone who is not as enthusiastic about their company as you plan to be.
We’ve put together the 10 key questions to ask a franchisor to help you make a sound choice for your investment:
1. How and when did the franchisor get started? Does the business have a solid footing and does the franchisor have the necessary experience to continue to run and manage the business?
2. What are their plans for the future? Where does the franchisor see themselves in five years’ time? It is important to understand their mid to long term goals and commitment to the business. Like joining any company, it is important to identify a good fit between you and the franchisor and that you share the same vision and passion. Ideally you want to grow in partnership, which won’t be possible if they have plans to sell up at the first opportunity.
3. What is my commitment to the franchise? Understand what the franchisor expects from you – Is there a specific franchise term? Can I be flexible with the hours I operate? Thoroughly read the franchise agreement to see what is specified and query anything that isn’t immediately clear.
4. How much do I need to invest and how much working capital do I need? As well as your initial investment, be sure to ask about other possible costs such as equipment, staffing and licenses for premises. You’ll also need to understand any ongoing costs such as marketing, maintenance and equipment.
As well as the initial start-up costs you will also need working capital to see you through the first several months until you hopefully begin to turn a profit. Ask the franchisor for figures on how long on average this takes other franchisees to achieve.
For a more in-depth view on setting up and managing your franchise accounts and finances read our guide to the basics of franchise accounting.
5. What support will the franchisor provide? Most franchisors offer an initial training period but find out how far that extends and if there are any ongoing training opportunities offered. You can also establish what support there is for administration, advertising and promotion. It is good to query at this stage how much time and help your franchisor will provide and whether you will be able to access their team directly. If you do hit a problem then it is nice to know they will be available for support.
6. How many franchisees do they have? This may give you an understanding of how successful the franchisor is but also how well they can manage the business. A string of franchisees over multiple locations may mean the franchisor is spread too thinly to provide you with adequate support. Equally, if they have been established for a while and only have a couple of franchisees then they may not have the expertise or resources necessary to grow. Ask for contact information or testimonials from current and past franchisees so you can hear their experiences. Discover what an average day involves, if they have successfully grown the business, have they suffered any disagreements (and if so, how were they resolved), and how they find working with the franchisor.
7. Have any of their franchisees been unsuccessful? It is natural that any business might have some failures so speak to your franchisor to discuss if this has been the case and if so what they have learnt from these failings. It could stop you from making the same mistakes.
8. How much can I earn? If the promise of instant returns sounds too good to be true… then it probably is! Most franchises only start to see a profit after year one or year two. Whilst earning potential may depend on geographical location, your franchisor should have a good idea of the average income you can expect to see.
9. What if I want to terminate or sell my franchise? There may be circumstances that could mean you having to exit the business e.g. family relocation or financial difficulties. Find out if there are any termination fees or a minimum franchise term that apply before you can terminate the contract. Alternatively, you may look to start a franchise with the sole aim of building it up to then re-sell at a later date. Do your homework to research if any of their franchises have been re-sold and if so how long did they take to sell and for what price.
10. Are they a member of the bfa? The British Franchise Agency is the industry’s governing body. It accredits franchisors using a stringent set of criteria in relation to the structure of the business and terms of the contract between franchisee and franchisor. If they are not a member of the bfa then establish why.
Once you find your perfect franchise investment, it’s a great idea to partner with a qualified accountant from the start.
A chartered accountant with experience in Franchise Accounting will ensure your business is compliant and above board, particularly when it comes to HMRC and tax.
HD Franchise Accountants (Part of Horner Downey & Co) are both Chartered Accountants and British Franchise Association accredited, meaning we have the expertise and authority to always act in your best interest. Contact us today to discuss your franchise plans.