Franchise Buying Guide

Interview Both Sides of the Franchise Equation

What to Ask the Franchisor
Presented by Guidant Financial
Guidant Financial specializes in helping entrepreneurs purchase new franchises using their retirement funds.

During your interview, you really want to concentrate on some key areas that will help you determine the strength of the franchise:

  • Ask what the pretax net profits of existing operations are and compare them against the earnings statement or pro forma that the franchisor has already supplied you.
  • Find out what is included in the training program, field assistance, store design, facility construction, site selection, and feasibility studies.
  • Will there be any additional working capital required after the initial fee and investment, and if so, how much?
  • How will the franchisor arrange for the supply of product to the business? Ask to see a current price sheet.
  • Ask the franchisor to detail exactly what the territorial restrictions and protections are.
  • Find out how many franchises have been sold to investors in the state you will be operating in during the last 12 months, and how many have opened a franchised business in that time.
  • Ask if the company has any plans for further expansion in the state. Has it identified any locations it plans to develop?
  • If purchasing a current franchise, ask to see the operating books and records of the business for the past two years.
  • What type of support will the franchisor provide once your franchise has opened its doors?
  • Find out if any franchisees have been terminated. If some have, have the franchisor detail the reasons. Have any franchisees failed or gone bankrupt?
  • What kind of financing is available from the franchisor, if any?
  • Find out if there are any current lawsuits pending against the franchisor. Have them elaborate on any past judgments.
  • Find out how disputes between the franchisor and franchisees are settled.
  • Will the franchisor assist in site selection? It will be of enormous help if it does.Whether it does or not, do your own demographic study so you are familiar with the profile of the audience within the market area.

Don't be afraid to ask questions. And don't be afraid that you'll appear foolish because, frankly, very few people understand the franchise agreement or the FDD in full. Primarily, you're trying to pinpoint any problems that may exist in a franchise. Don't just settle on any franchise.

If you run across a franchisor that is reluctant to pass along a list of current franchisees, makes promises that you'll earn a fortune on a limited investment, insists on deposits for holding a franchise unit, tries to convince you to sign before someone else does, or is full of empty rhetoric when answering your questions, head for the door. These are franchisors that are probably trying to pull a fast one to get your money.

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