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:
- Initial Training Programs. You need to determine how well the initial training programs prepared the franchisees for opening and running their new business. If you hear that the franchisees had many issues they were unprepared to address, that's a huge red flag.
- Opening Support. Find out how easy the franchisor made the process of getting the first unit open and operating. Was there assistance in site selection, lease negotiation, construction and design assistance, financing assistance, permits or any other factors unique to getting this business up and operating?
- Ongoing Support. You need to know how effective the ongoing support services of the franchisor are in terms of helping franchisees deal with the problems that come up in the running of their business once their unit is open and operational. If there is no support to help the franchisee deal with changes in the marketplace on a long-term basis, that's cause for concern.
- Marketing Programs. Most franchisors collect marketing dollars from every franchisee to put into a pool spent to promote the brand. You need to determine whether the franchisees are happy and supportive of the way this process is handled. Note: This is typically the area where you'll find the most complaints in any franchise you research.
- Purchasing Power. Does the franchisor use the collective buying power of the total system to get discounts on supplies and inventory beyond what an independent operator could achieve? This factor is one of the biggest advantages of joining a well-run franchise system and offsets much of the fee cost associated with being a franchisee, if the franchise is doing an effective job in this area.
- Franchisor/Franchisee Relations. Determine how the franchisees feel about their relationship with the franchise company in general. Is the franchisor supportive, caring, focused on their success, responsive, effective, organized and trustworthy? Make sure the values of the organization are consistent with your values.
- Investment. The UFOC will give you a wide range for the total initial investment required in the business. Use your franchisee discussions to narrow that down to a reasonable and conservative estimate of how much capital you need to be successful in this franchise, based on their actual experience. It's also valuable to ask something like, "Knowing what you know now, what changes, if any, could you have made to significantly lower your opening costs?"
For more on researching a franchise, read "The Best Way to Get Franchise Earning Information."
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.