QUESTIONS TO ASK THE FRANCHISOR
When you use our consulting services, we help identify companies that offer the type of business opportunity that matches your goals, objectives, situation, background, skill sets, etc. At the appropriate time in your investigation, you will want to talk with a representative from each of the potentially promising franchise companies for whom you achieve a strong match.
There are basically four different phases during which you will talk with franchisors in this process. Below I have listed the generic type of questions that you might want to consider asking a franchisor during each of these phases.
1. THE INTRODUCTORY PHASE
This is a greeting process that takes place by phone. The conversation is friendly and includes a general discussion about yourself, as well as, general information about the company and its franchise. Nothing heavy. Mutual inquires are the common exchange. This conversation often—but not always—takes place BEFORE you receive a copy of the company’s marketing or offering documents.
SUGGESTED QUESTIONS FOR YOU TO CONSIDER:
First let the franchisor representative know that you are excited about exploring their business. Then ask a few questions that relate to the business in general, such as these:
How is business going this year?
Do you have any experience in my market or one similar to it?
Do you see any trends that might affect your business in the next few years?
Ask any other INTRODUCTORY questions that you would like to ask at this time.
If a company sends you their offering documents (see description below) before you talk by phone, I suggest that you save your questions about this document until a later discussion, after you have read the documents thoroughly. In fact, it may be a good idea to discuss your questions with me before you talk with the franchisor about their document. (I very much recommend this)
REMEMBER: The bulk of your exploration process is ahead of you. Try to not “skip to page 12, while the franchisor is still on page 1”. Let the information flow to you, and THEN ask your detailed questions.
2. THE OFFERING DOCUMENTS PHASE
Commonly this document (FDD) is filled with some or all of the following information:
*The Principles and Officers of the company
*Business History and Experience
*Legal and Financial History
*The Franchise Investment Requirements
*Availability of Financing Programs
*Any Types of Restrictions on Products/Services
*Obligations of Franchisees and the Franchisor
*Intellectual Property Rights
(e.g. trademarks, copyrights, patents, etc.)
*Renewal, Termination, Transfer (reselling the business)
*Dispute Resolution Methods
*List of all franchise owners
*A Copy of the Franchise Agreement
*Exhibits (these vary among companies)
Normally these offering documents are quite thorough documents, and YES, you want to read them for the company (ies) you would like to explore. If fact, read them carefully, take notes, and highlight sections you do not understand, and discuss these items later with the franchisor. You can write on the document, nobody is going to ask for it back.
MAJOR SUGGESTION: Read a company’s offering documents as if you already owned one of their franchises! It will make more sense to you. The primary purpose of the “rules and regulations” outlined in these documents is to protect the company’s system from those who might not present the best image of the business. You WANT a company to have the fortitude and foresight to write and enforce an agreement that protects your investment.
QUESTIONS TO CONSIDER WHILE REVIEWING THE OFFERING DOCUMENTS
This is the time to ask detailed questions about the background of the company, the principal players, the investment, royalties, marketing fund contributions, additional operating expenses, legal history, financial status of the company, obligations of franchisees, obligations of the company, “turn over” rate of franchisees, and all of the other items listed above.
You will determine the questions yourself as you go through the documents. You can also have outside advisors such as FRANCHISE attorneys review these documents with you if you would like. Do NOT go to an attorney that is not knowledgeable about franchising. You will be throwing your money away.
Also please remember this: most companies do NOT change their agreement, so don’t invest heavily in attorney services to get a company to alter their franchise agreement. It won’t happen.
Make sure you understand the agreement, just do not expect to be able to change it. SOMETIMES a company will write a “letter of understanding” that merely clarifies a point or two about the Agreement or the company’s policies related to it.
REMEMBER: Company representatives can discuss income projections ONLY if the company puts such information in their documents. Most do not do so. If you do not see numbers that relate to income potential, then you MUST ask those questions of the franchise owners, which we recommend you do anyway.
3. The POST-DOCUMENTS PHASE
Once you have read a company’s offering documents, you will typically conduct two investigative activities, i.e., talking with franchise owners and visiting the company’s home office to meet the officers, support staff, etc. BOTH steps are crucial to your learning process.
(NOTE: In another note to you, I will suggest some questions to consider asking existing franchise owners.
QUESTIONS TO ASK THE FRANCHISOR…during a home office visit:
NOTE: If a company offers a “Discovery Day”, which is a 1-2 day visitation to the home office to allow a candidate to meet the key players in the company’s support program, GO!
Although these visits might cost you a few hundred dollars in travel costs, they are well worth the investment. Does it not make sense to invest a few hundred dollars to “check out” the home office of a business in which you might invest several thousand dollars?
Some, but not all companies, help to defray the costs of visiting their home office.
You may or may not be the only person visiting the home office that day. Many companies hold regularly scheduled “Discovery Days” specifically designed to accommodate a few candidates who are investigating their franchise.
You are welcome to take notes during a Discovery Day, and leave your tape recorders home. They can be intimidating; hence, you will receive less information. Plus, are you really going to listen to 8-10 hours of tapes once you get home? You are better off jotting down a particular point and then calling back after Discovery Day and asking questions about it.
Here are some questions you might want to ask during a home office visit:
1. What does your company do to distinguish itself from the competition?
2. What has been the company’s annual rate of growth during the past five years at both the franchise level and at the retail level?
3. What factors have influenced these growth trends?
4. Where do you see this company going during the next decade? Do you see it growing? If so, why? What actions is the company taking to do to facilitate—and support—that growth?
5. Do you have any current legal situations facing the company that are not yet reported in the offering documents? Please explain, if you can.
6. How happy are your franchise owners?
7. Ask any remaining questions you have from the offering documents.
8. If you would like to gain the franchisor’s perspective on any observations you made during your conversations with the company’s franchisees, ask now.
9. Ask if there are any upcoming changes to the offering documents or to the operation of the business, e.g., changes in price, royalty structure, marketing fund, operating costs, new product lines, etc.
NOTE: Be sensitive! Some questions should be asked 1-on-1, rather than in front of other franchise candidates. Remember the old rule, “Ask sensitive questions in private and praise in public.”
4. THE FRANCHISE AWARDING PROCESS
Usually by the time you get to this phase (if you do), your questions will be quite refined and specific about the application of the business in your area, etc.
EXAMPLES OF QUESTIONS TO ASK FRANCHISOR:
Ask about any aspect of the business that you do not understand relative to YOUR application of this franchise in YOUR area. For example, you might verify territory boundaries, if they apply. By now, questions regarding the business in general should have been asked and answered.
HINT: The awarding process should be a positive event!
You can ask virtually any questions of the franchisor at most anytime you want. These are the four basic times at which most questions are asked. And REMEMBER, in general, let the information flow to you, and THEN ask your questions. You will sound much more intelligent and the company will be much more willing to respond to your inquires after you have done your homework.
Fill up those yellow pads and/or PDA’s with questions!!!!!!
Keep a running log of your questions and the answers you receive. You may want to review them as you progress through your investigation.
Remember, the only way you can learn is to ask questions.