There's no substitute for homework.
That's where the real learning happens for students, and the same is true when investigating a franchise. The most important homework step is calling people, specifically the franchisees of the system you're interested in. You'll receive a list of all the existing franchisees in the Franchise Disclosure Document you get from the company, so take the time to call at least five to 10 of them. It also a good idea to do a search online to find some former franchisees.
Here are the best questions to ask them:
1. How well did your first unit opening go?
This broad question focuses on how effectively the franchisor’s systems and training work. An honest answer will reveal how easy the franchisor can help make the process of opening and operating that first unit. There will always be snarls when opening any new business but this question will tell you if they were small annoyances or ulcer-inducing.
2. How well do the marketing programs work?
Most franchises have required marketing initiatives designed to help build the business by seeking to attract a lot of customers. Few subjects arouse more emotion or controversy among franchisees than whether their required marketing programs work.
3. How well does everybody get along?
Many franchisors describe their s as being just like family. That may be true but find out whether it's like Beaver Cleaver's or Archie Bunker's. If you don’t want to live a life of conflict with someone calling you “meathead” every day, then the answer to this question is important. Make sure you have a good feeling about the support and teamwork of the organization and that it matches your values.
4. How much money can I make?
This question is the most important one for many prospective franchisees. You’ll want to determine the average startup investment, the average unit sales, the main expense categories, gross and net margins for the business, and how long it takes a new unit to break even and start making money for the owner.
It is usually best to save the money questions for last. Most people are reluctant to discuss their personal finances with someone they don’t know. You’ll find that franchisees are more willing to cover this subject once you’ve established some rapport with them.
5. If you had it to do all over again, would you still buy this franchise?
No matter what the answer is, explore it. Your response should always be “Why?” The most common answer is a pause followed by a yes. This usually means that there are valid arguments for answering yes or no, but pride of ownership usually tips the balance toward the positive answer. Ask for the strongest argument they can think of for answering yes or no. The contrast can be very informative, especially if you can read between the lines.
Another benefit of these calls is that you will likely find your interest in the franchise quickly increasing or waning after a handful. Waning interest is a red flag telling you that this probably isn’t the right business for you. If you find your interest rapidly increasing, it is a very positive sign.
Even if you can’t really put your finger on why either of these reactions is happening, trust your gut. Your instincts have a way of making you feel right or wrong about a decision like this and they are usually correct.