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Interviewing Existing Franchisees

When investigating a franchise, don't forget to speak with franchisees already in the system to get the real scoop.
November 1, 2004
URL: http://www.entrepreneur.com/article/74074

Your most valuable source of information on any franchise system is the existing franchisees. To get the most out of your contacts with franchisees, it's important that you focus on the right topics and know how to spot the "red flags" that might appear.

You should plan on calling a sufficient number of the existing franchisees to ensure you have a sense of the prevailing attitudes of the group. Though you want to find that the majority of franchisees are happy and supportive of the franchisor, it is also important to try to find any unhappy franchisees as well. Their perspective will give you a range of input so you can determine what might happen to you if you become a franchisee. You may also want to contact ex-franchisees to find out why they decided to leave the system.

The following list covers the principle areas to investigate during these existing franchisee contacts:

Earnings. It's critical that you have a strong sense of just where the average unit is in terms of earnings and how long it took to get to this point. By the time you finish your franchisee contacts, you should know the answers to the following questions: How much money does the typical unit make, given a specified length of time in business? How soon does a typical unit start making money after opening? What is the range of answers for these questions? If you are simply not able to determine these answers to your satisfaction in your research, do not settle. This is a huge red flag, and you need to tell the franchise company that such a lack of information will cause you to decline the franchise if they can't help you get the answers you need.

Ex-Franchisees. Any franchisee who left the system in the past year has to be disclosed in the UFOC. It is sometimes helpful to call people in this category just to see why they left. The answers won't necessarily be negative, but if they left because it was a bad experience, spend some time asking them about the reasons they felt the opportunity wasn't right for them. As you compare and contrast these conversations with those you've had with existing franchisees who are happy, you may get insight that will help you determine if there is a key ingredient for success. You can then use this insight to help you determine if this is the right franchise for you.

As a final piece of advice, it's always a good idea to bring up the subject of earnings as the last topic in your franchisee visits. Most people are reluctant to discuss their income with strangers, and you'll find the franchisees are more willing to cover this subject after you have spent some time visiting with them. At that point they know you're not a competitor trying to get information, but rather, a serious prospective franchisee who needs the information to proceed. They were all in your position at some point, so they should be willing to help you once you've established some rapport with them.