107 Questions For Franchisors and Franchisee



Purchasing a franchise is a major investment decision and not every franchise will be right for every individual. The following list of questions that FranNet and the CFA recommend you should ask, if you are considering purchasing a franchise.

Questions For Franchisors and Franchisee

 

I . THE FRANCHISOR – IDENTITY & EXPERIENCE

  1. Who are the shareholders of the franchisor?
  2. Who are the officers and directors of the franchisor?
  3. What is the business experience of the franchisor’s directors and officers?
  4. Is the franchisor a subsidiary of another company?
  1. What is the franchisor’s financial condition?
  1. Have any of the franchisor’s directors, officers or shareholders gone bankrupt or convicted of any criminal offences in the last 7 years?
  2. How many years has the franchisor been operating?
  3. How many years has it been offering franchises?
  1. How many franchises does the franchisor have?
  1. Is the franchisor a member of the Canadian Franchise Association?
  2. What is the franchisor’s reputation with the Better Business Bureau?

I I . FRANCHISOR RELATIONS WITH ITS FRANCHISEES

  1. On a scale of 1 – 10, how good is the franchisor’s reputation for relations with its franchisees?
  1. How does the franchisor choose its franchisees?
  1. What are the franchisor’s plans for future development?
  1. How will these plans affect your dealings with the franchisor?
  2. How does the franchisor monitor franchisee operations?
  1. Does the franchisor keep a separate advertising budget?
  1. On a scale of 1 – 10, how well does the franchisor solicit franchisee input into marketing strategies new product development, etc.?
  2. On a scale of 1 – 10, how well does the franchisor account for the unique needs of different marketing areas when it designs its marketing strategies?
  3. Will the franchisor provide a list of all the franchisees in the area?
  4. Have franchises been terminated in the last 10 years?
  1. Has the franchisor litigated with franchisees previously?

 

  1. Is there any pending litigation against the franchisor?
  1. How does the franchisor describe its corporate culture? On a scale of 1 – 10, how comfortable are you with this culture?
  2. Does the franchisor have a recognition program for exceptional performance? What does it involve?
  3. Is there a franchisee association or council? Who belongs?
  4. How important is innovation to the franchisor’s industry?
  5. How innovative is the franchisor?
  1. Does the franchisor have plans for expansion or diversification? What affect will these plans have on your dealings with the franchisor?
  2. Has the franchisor introduced any innovations since it began its business?

III. REQUIRED INVESTMENT

  1. How much is the initial franchise fee?
  1. What is the anticipated cost of leasehold improvements, equipment, signage and start-up inventory?
  2. What is the anticipated occupancy cost of the premise? i.e.
  1. What other costs may be incurred?
  2. Does the franchisor assist in the financing of the franchise?
  3. What is the anticipated period of time between start-up and break-even /profitability?
  1. What is the anticipated “business” working capital required through the launch period (from signing of contracts through to the franchise achieving break-even/profitability)?
  1. What is your anticipated “personal” working capital required through the launch period (the amount you need monthly to cover living expenses, multiplied by the number of months before you can draw income form your franchise)?
  2. On a scale of 1 – 10, how well does the total investment, including business and personal working capital, fit within your financial investment range comfort zone?
  3. What are the anticipated franchise earnings?
  1. On a scale of 1 – 10, how well do the anticipated earnings satisfy your income goal/requirements?

IV. FRANCHISED PRODUCT OR SERVICE

  1. What makes the franchisor’s product or service unique?
  1. What are the current sales of the franchisor’s product or service?
  1. How long has the product/service been on the market?
  2. Would you buy the product/service on its own merits?
  3. What is the competition for the franchisor’s products or services in your market?
  4. On a scale of 1 – 10, how competitive is the price of franchisor’s product or service?
  5. Is the sale of the product or service subject to legal standards and regulations and if so, what are the applicable federal and provincial standards and regulations and does it comply?
  6. Is the product protected by patent, trademark, or copyright?
  1. Are there product warranties? Are they the responsibility of franchisor, the franchisee (YOU) or franchisee or a third party supplier?
  2. What products must be purchased from the franchisor or designated suppliers?

V . SALES TERRITORY AND LOCATION

  1. Is your franchise territory exclusive?
  1. Can you decrease or expand your sales territory?
  1. Has the franchisor provided you with population statistics, including age, occupations and income levels, and information about projected growth potential over the next few years? If not, how will you obtain this information?

VI. QUESTIONS TO ASK CURRENT FRANCHISEES

  1. What was your total investment of the franchise?
  2. Were there any unexpected costs? If so:
    1. what were they for?
    2. How much were they?
    3. How unique were they to that individual, or is it something several franchisees experienced?
  3. On a scale of 1 – 10, how good is the quality of the products supplied by the franchisor or its designated suppliers?
  4. On a scale of 1 – 10, how satisfied are you with the price-quality relationship?
  5. On a scale of 1 – 10, how well reliable are deliveries from the franchisor or its designated suppliers?
  6. On a scale of 1 – 10, how effective was the franchisor’s initial training? How long was the training?
  7. What is the franchisor’s ongoing training program?
  1. On a scale of 1 – 10, how effective is the franchisor in responding promptly and helpfully to questions you have or advice you seek?
  2. What type of ongoing support and advice, including advertising, marketing and promotional assistance, do you receive from your franchisor?
  1. On a scale of 1 – 10, how profitable is your franchise as compared to initial expectations?
  2. How long did it take revenue to cover operating costs?
  3. How long did it take for you to receive a reasonable salary?
  4. What have you done to make your franchise successful and would you recommend this franchise?
  5. Does the franchisor have a dispute settlement board with both franchisee and franchisor representatives? On a scale of 1 – 10, how effective is it?
  6. Have you ever had a serious disagreement with your franchisor? What was the disagreement about? How was it settled?

VII. THE CONTRACT

  1. Are the franchise, the location and the territory clearly described in the contract?
  2. Is the contract specific as to the type and size of operation you’re expected to manage?
  3. Does the contract clearly describe the duration, type and cost of the training to be provided by the franchisor?
  4. Does the contract include, in detail, all of the franchisor’s verbal promised made to you throughout your discussions?
  5. Does the contract clearly specify the type, amount and timing of all payments to the franchisor including the following?
  1. Are you required to purchase supplies from the franchisor or other designated suppliers? If so,
  1. Can you use alternate suppliers if franchisor’s quality standards are maintained or franchisor’s supply deliveries are interrupted?
  2. Do you have the right to use any innovations developed by the franchisor?
  3. Is there a sales quota? On a scale of 1 – 10, how attainable is it?
  4. What is the contract term?
  1. What types of records and reports are you required to provide to the franchisor?
  2. Are you leasing your location or will you have a sublease?
  1. Are you required to build or may you renovate existing franchise premises?
  1. Do you choose the location or sales area of the franchise, or does the franchisor?
  2. Can you operate more than one franchise in your sales area?
  3. Can you sell your interest in the franchise?
  1. Can you terminate the contract?
  1. When and how can the franchisor terminate the contract?
  2. If the contract is terminated, will you be compensated for the goodwill that you have built up in the business?
  3. Is there a post-term non-competition covenant?
  4. If you violate a term of the agreement, do you have time to correct the situation?
  1. Does the contract contain an arbitration clause?
  2. What happens if you suffer a prolonged illness or death?
  1. Can you engage in any other business enterprise for the term of the contract?

VIII. FRANCHISOR’S ASSISTANCE TO YOU

  1. Does the franchisor offer financing assistance?
  1. What inventory control programs/assistance does the franchisor provide?
  2. Will the franchisor choose or assist you in the selection of an appropriate site?
  1. Does the franchisor build the premises? If not, does the franchisor specify the design of premises layout and displays?
  2. Does the franchisor assist in lease negotiations, or do they sign the lease and then sub-lease to you?
  3. Does the franchisor provide initial training in, or assist in selecting your initial employees?
  1. Does the franchisor provide initial training and ongoing training for future employees? If so,
  1. Does the franchisor provide on-site opening assistance?
  1. What continuing management assistance will you receive? On a scale of 1 – 10, how good is it?
  2. On a scale of 1 – 10, how good is the franchisor’s system/ability to detect franchisees in need of assistance?
  1. What advertising and sales promotion assistance does the franchisor provide?
  1. To what degree do you control the cost and format of local advertising?
  1. Does the franchisor have simple and well-run book-keeping and other administrative procedures?
  2. Does the franchisor provide operational manuals and guidelines?

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