Understandably, you will have many questions as you go through the process of buying a business. Make sure you’re asking the right ones in order to better understand whether you should by a franchise and what it could mean for you. The franchise disclosure document and other research you do on your own will give you good information, but we’ve also come up with questions that can provide insight you wouldn’t otherwise get.
Questions to ask the franchisor
Of course, one great source of information is the franchisor you’re thinking about working with.
What’s the return on investment for this franchise?
Naturally, profit will be high on the list of things you’re curious about. The more established a franchise is, and the more locations it has, the more data there should be around profitability and return on investment (ROI). You want to understand how long it takes to not only break-even but also turn a profit so that you are prepared and have enough money in the bank to cover the period where you might be in the red.
Will I be responsible for my own marketing?
Typically, a franchisor will provide some marketing, such as national advertising, signage, and promotions, but it is often up to the individual franchisee to handle local marketing. Find out what successful marketing looks like for the average franchisee, and what they spend on it annually. You’ll need to build both the budget and the time needed to market your franchise into your business plan.
Questions to ask other franchisees
If you want the real story, talk to people who currently run franchises.
Would you do it all over again?
Having a conversation with an existing franchisee can help you find out things that the franchisor wouldn’t tell you, like maybe that once they get you set up, the franchisor doesn’t provide a ton of support. Or that the franchisor raises fees after the first year. A franchisee will be honest about all the bumps and warts that a franchise has, which can be immensely useful in helping you make a decision.
Are you profitable?
Again, an actual franchisee can give you the inside scoop on what running a franchise is really like. Do their answers match up to what the franchisor told you about how long it takes to reach profitability? Were there snags to bringing in money that you should be aware of?
Questions for others
Ask some questions of people outside the circle of franchisor and franchisee.
Is the franchise reputable?
This is a question for the Canadian Franchise Association (CFA). Searching its member directory to find any franchise you’re considering buying into can give you the sense that this particular brand is more reputable, simply because the CFA has high standards for the franchises it allows to be members.
What’s the overall impression of this company?
Look at competitors of this franchise and compare what they’re doing. Are there any gaps that the franchise you’re considering is overlooking that could be problematic later? Also talk to people in the industry – what is their opinion of the brand? Is it investment-worthy?
Is this a good investment?
Talk to financial and business advisors at your bank to get a sense for whether investing in this particular franchise is a sound business decision. The advice of a neutral third party will help you make the right decision. Don’t be shy about asking questions. The more you ask, the more you know, and the more you know, the better informed you are to make the right decision about franchising.
Contact Jeff Thomas to discuss: 905-988-4042 x2304 or Jeff.Thomas@meridiancu.ca
A version of this article was originally published on May 28, 2019
