Final Answer

Questions To Ask The Franchisees

5. To what degree does the franchisor exert operational control over the franchisee?
In general, the word control has a negative connotation; however, when it comes to franchising, it might just be the thing to look for. "Franchisors need to exert control to make sure that brand promise will be delivered every time," says Seid. "That's what the franchisee is relying on. Without it, that franchise may not be delivering the same [product or service] down the road, and it could ruin their business."

Seid recommends visiting multiple locations to see firsthand how well the franchises are being run and ask existing franchisees about what actions the franchisor is taking to ensure the system is operating consistently from location to location.

6. Given what you know today, would you purchase this franchise again?
In a franchise system, the best source of knowledge may come from past or existing franchisees. They have traveled the road you're about to go down and have much more inside information about the specific franchise system than you'll ever be able to gather on your own. Take advantage of this valuable resource to find out if the franchisees' expectations are being met, if their relationship with the franchisor is positive and if the franchisor really has the franchisees' best interests in mind, advises Seid. But use discretion when deciding which franchisees to call. "Some franchisors have the bad habit of saying, 'Here is a list of all the franchisees, as required by the franchise disclosure document, but I want you to call these five,'" warns Seid. "Generally, I don't care about those five. It's the rest that I want to focus on."

7. What did it actually cost you to develop your franchise?
How accurate was the information in the Uniform Franchise Offering Circular, including Item 7 about initial investment? Was the working capital identified in Item 7 sufficient for you until you broke even and went cash-positive? When calling up existing franchisees, be sure to ask them specifically about Item 7 of the UFOC. Even though the UFOC is a document that lays out key investment information and must be provided by the franchisor, the information is not always the most accurate, says Seid. Consequently, you'll want to double-check Item 7, which is the franchisor's estimate of an incoming franchisee's total investment. The best way to do that is to ask franchisees who launched recently. They will disclose whether the listed dollar figures are indeed sufficient to get the business off the ground. "Item 7 is probably the most essential disclosure," says Seid. "Usually when businesses fail, it's not because the product is bad or people didn't work hard enough. It failed because the [owner] ran out of money."

Questions To Ask The Franchisors:
8. Can you describe the training program?
What kind of practical experience does each of the instructors have in operating the business being franchised? "No matter what [incoming] franchisees think they know due to experience in other industries, products, etc., the reality is that they know little or nothing about the specific franchise," says Harold Hill, president of Bad Ass Coffee Company, a gourmet coffee franchise based in Salt Lake City. "Therefore, the training program probably becomes the most important tool for them to succeed in whatever franchise they're buying."

Expect training that is structured and teaches about hiring, dealing with HR issues, bookkeeping and the overall matrix of the business, says Seid. Also, take notice of who's conducting the training. A good training program, says Seid, is one that is led by people who have firsthand experience operating the franchise and are therefore familiar with all the ins and outs of the business.

9. Does the franchise system's management have experience managing other franchise systems?
Becoming a franchisee means you're going to be putting your money, time and faith into a particular system, so before you make too hasty a decision, make sure you're putting your future in the hands of the right people. "You want to look back at the litigation history of the management, their experience and the performance of their past franchise systems," says Seid. "Don't just accept the fact that [a system] had problems and couldn't overcome them. Good management overcomes hard problems." If you can't uncover a franchise system's dirty laundry straight from the franchisor, conduct a search on the internet, advises Seid. The extra effort will be well worth it in the long run.

10. Is the franchisor selective about whom they sell franchises to, or are they simply selling to whomever is willing to buy?
A telltale sign of whether the franchise is dedicated to building a healthy, prosperous franchise system or just wants to make some quick sales is how it goes about finding franchisees, says Seid. A franchise system that sells to anyone who meets certain criteria, that works entirely through a broker network and uses an area representative model to sell franchises is one that raises a red flag for Seid."You [might] not meet the president of every single franchise, but you [want] to meet a divisional head of operations and the training folks," says Seid. "You just don't want to meet a salesperson. Salespeople are really nice, but they have nothing to do with your long-term business."

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This article was originally published in the December 2007 print edition of Entrepreneur with the headline: Final Answer.

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