The following questions and answers are perhaps some of the most critical questions that should be asked by someone thinking of buying a franchise.
What is the total cost of the franchise?
It is essential you know exactly how much it will cost you to get up and running as a franchisee. This is not the same as the Franchise Fee which only grants you the right to become a franchisee. You need to include all the set-up costs to get you trading as well as any working capital that you will need in the short term whilst your franchise business becomes established. Make sure you ask for the Total Investment including VAT!
How long has the business been operating?
Franchising is based around people buying in to a proven business model. You need to be certain that the franchisor has operated for a number of years to prove the business works before they started to franchise. Find out when the business started and when they started franchising.
How many franchisees do they have and how many fail to achieve the franchisee projections?
The more franchisees they have that are successful the more likely it is that you will be successful as a franchisee, however projections are one thing – what franchisees actual achieve is what matters. Ask what percentage of all franchisees in their network achieve the franchisee projections and what percentage don’t achieve them.
Does the sector the franchise operates in have a long future?
Most franchises are for 5 years with the option to renew for at least 1 more 5 year term. Ask the franchisor what research they have to indicate that the market demand will continue for the next 10 years. Also ask yourself if you think the sector will still be popular in 10 years’ time as you view should not be biased!
Is the business seasonal?
Check whether the business is seasonal and if so how much variance there is in business between months. You may find that there a times of the year when the business is very slow. You will need to be sure you can survive during the lean months. Ask if the business is seasonal and if it is, how franchisees manage in the lean months.
What support is provided to franchisees?
Most franchisees do not require franchisees with previous industry experience as the franchisor will train them in everything they need to know to operate a successful franchise business. In reality franchisees will never know everything and will rely on their franchisor to help them when issues and circumstances arise. Ask the franchisor what support they provide their franchisees and whether the help is structured in a formal or ad hoc basis.
What is the role of a franchisee?
It is really important to understand what your role will be as a franchisee. Will you be working from home coordinating a team, working in a shop, cold calling etc? Find out what a typical day in the life of the franchisee would be to see whether you would be suited. It is likely that you will be a franchisee for up to 10 years so you must make sure you will enjoy the role.
What skills and competencies does a franchisee need?
Having stated that most franchises do not require franchisees to have industry experience as the franchisor will train the franchisee fully there will still be certain level of skills and competencies that a franchisee needs to have at the outset. These may be as simple as having basic computer skills or the franchise may require previous retail sales or management experience. Find out whether there a skills and competencies that franchisees need to already have prior to becoming a franchisee.
Has the business been set up correctly and according to industry standards?
Unfortunately there is no law in the UK that requires a franchisor to seek any professional advice when setting up a franchise. There is also no law that says the terms of the franchise have to be fair. Therefore check who the franchisor used to set up their franchise and to produce their franchise Agreement. If they used British Franchise Association accredited consultants and lawyers then you will have a degree of comfort that the franchise has been set up correctly. If they used non accredited consultants and lawyers or did it themselves then be extra careful.
Can you speak to existing franchisees?
Remember that despite what many franchisors will say, most franchisors are looking to recruit franchisees and sometimes don’t tell prospective franchisees everything that an individual needs to know. To get a more independent assessment of any franchise, it is best to ask existing franchisees what their experience of the franchise is actually like, warts and all. Ask the franchisee whether they will allow you to speak directly to their franchisees and if they will whether they will provide franchisees contact details. If they don’t want you to speak to their franchisees ask yourself whether they may have something to hide. It is important however to remember that very rarely will every franchisee be totally positive and sometimes things franchisees grumble about are not the franchisors fault but the franchisees. You need to use common sense when assessing what franchisees tell you, however if there is anything you are concerned about, ask the franchisor to comment.
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