Franchising is a great way for first-time business owners to hit the ground running with an effective business model. And with recent tax reforms, deregulation, and a steadily growing economy, the franchise industry is set to build on its momentum and grow for the eighth year in a row. But with thousands of franchisors to choose from, finding the right one for you takes research and due diligence.
Thankfully, it’s not hard to find the information you need. Franchisors reveal a lot about their business through the Franchise Disclosure Document (FDD), but there’s another piece of the research puzzle just as important for you to dig into: the existing and former franchisees themselves. After all, these are the people who run the business day in and day out.
Speaking with current and former franchisees is a great way to get a more personal perspective into the business.
Once you’ve narrowed your options to a handful of potential businesses, make a list of people to reach out to along with the questions you’ll be asking them. This guide will show you where to look inside your FDD (which you’ll receive from the franchisor) to find the names of current franchisees as well as ten important questions you should be sure to ask.
Using Item 20 of the FDD to get in touch with franchisees
The FDD is a long booklet giving you important information about the franchise system and the agreements included. An FDD is broken into 23 “Items” which are like chapters in a book. Item 20 of the FDD provides a list of the current and former franchisees for any given company. This is an important resource you should use to get in touch with current or former franchisees.
While picking up the phone is the best way to reach out, you may want to arrange a time to sit down and discuss your questions more in-depth. In these cases, it may be more useful to reach out via email or through the professional networking platform LinkedIn to introduce yourself and set up a more formal time to discuss the business.
Whichever way you feel most comfortable reaching out, there are a number of key questions that can help you get a more complete picture of what it’s like to be a franchisee. Specifically, you’ll want to find out:
- If franchisees are happy with the income level they’ve been able to achieve through the business
- How much support they’ve needed from the franchisor and how well those requests were handled
- How operating the business fits into their daily life, and
- If they’re happy with the overall investment they’ve made
What kind of questions should I ask franchisees?
To help you get started, we’ve made a list of 10 core questions you should be asking franchisees. Depending on the business and your interests as a business owner, feel free to ask these questions however you’d like and add as many to the list as you feel are necessary. The bottom line is finding out how happy they are as a franchisee with this particular franchisor. Ask them to describe their overall level of satisfaction as well as specific parts of the business they feel strongly about.
1. What is their personal business background? What kind of education, experience and skills did they have prior to purchasing their franchise, and what specifically has helped them be a better franchisee? In general, it’s a very good sign if people from different backgrounds are able to succeed with the same franchise. Most people who buy a franchise don’t have direct prior experience in their new franchise’s field. This question can be helpful in confirming how easy it is to be successful no matter where you come from.
2. Is the franchisor being honest when estimating the amount of money needed to operate the business in the beginning? When discussing the opportunity with a franchisor, you’ll be given startup costs. Asking if these costs were more or less accurate as far as what other franchisees actually spent can be helpful when determining how much you should trust the estimate given and expect to spend setting up the business.
3. About how long did it take for them to see a return on their investment? Get a sense of how long franchisees were able to make a return on their initial investment and become cash flow positive. While there are a lot of factors that play into this, such as whether or not you decide to hire staff immediately, this can give you a general sense of how long it will take to recover your initial costs and prepare for profitability.
4. Did the franchisor provide enough training and support to get them started right away? Answers to this question will give you a sense of how well the franchisor’s training will likely prepare you in your own business. Note anything franchisees mention as things they would have wished they’d known or learned ahead of time and come prepared to discuss those items during your training.
5. How much competition for business do they experience in their local market? While franchisors ensure they don’t allow multiple franchisees to fight for business in the same area, it’s important to know if other similar businesses affect current franchisees and to what degree.
6. Were there any unexpected costs that put a drag on growth from week-to-week or month-to-month? Current franchisees can help you anticipate things you might not be expecting, so it’s always good to ask about any surprises they’ve encountered, both good and bad. This particular question can help you identify any potential hiccups down the road you might not be aware of otherwise and prepare for it accordingly.
7. Are they satisfied with the size of their territory? This question can help you compare your own territory to the size of others to understand whether you should think bigger, smaller, or are right where you need to be.
8. How much time do they have to devote to daily operations versus growing their business with marketing, advertising and new employee training? This is a specific question that helps you understand something more general: time management. Get a sense for how franchisees find themselves breaking down their time when working on and in their business and how much time each core task typically demands. This is another area where you may find surprises that you’ll be well-prepared for after getting a franchisee’s firsthand perspective.
9. If they had it to do over again, would they buy the franchise again or choose a different opportunity? Hopefully most franchisees will answer this by saying they wished they’d only started sooner. This is obviously an important question for anyone considering a particular franchise. Be sure to have franchisees not only answer it, but try to explain why.
10. If they’ve been established for long enough to start seeing profit, have their earnings met their expectations? (Be aware that some people may be uncomfortable discussing this.) This is question is most appropriate for those who’ve had their franchise a while. If they’re comfortable talking about their financials, understand what their timeline looked like from starting the business, to recovering costs, to profitability. This can help you chart your own path and set general expectations.
Think of this as a list of starter questions to build on and don’t be scared to reach out. Most franchisees have these conversations somewhat often and probably did the same thing themselves. More often than not, they’ve been in your shoes as a buyer before, and they’ll be glad to help you.
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