10 Key Questions to Ask a Franchisor Before Investing

With an established brand, a proven business model, and all the support you need, investing in a franchise can be an excellent choice for many entrepreneurs. However, it isn’t easy as it may seem, as finding the right franchise business can be daunting. Here are ten key questions you need to ask a franchisor before investing:

1. What will be the total cost of investment?

Depending on the industry, brand, and location, the total cost of investment for any franchise varies. This is the reason you need to research before investing in one. You have to ask the franchisor for a complete breakdown of all the costs involved, including the initial franchise fee, ongoing royalties, marketing fees, and any other expenses. However, many franchisors offer financing options to help you fund your investment. Ask about these to see if you can qualify.

2. What will the ongoing royalties be?

Most franchises charge ongoing royalties, typically calculated as a percentage of gross sales or as a flat fee. These are paid on an ongoing basis throughout the term of the franchise agreement. It’s crucial to understand how much you need to pay and what services, such as continuous training, marketing support, and access to the franchisor’s network of suppliers, you will get in exchange.

It’s also important to consider how changes in your business will impact the ongoing royalties. For example, if you experience significant growth in sales, your royalty payments will increase accordingly. Similarly, if your sales decline, you may still be required to pay the same amount of royalties, which could impact your profitability.

3. Will I get support from the franchisor?

One of the biggest reasons franchising is popular is that you won’t start a business in the dark. You will get support and assistance from the franchisor, which makes it an ideal option for first-time business owners. To know what assistance you can expect is by asking the franchisor about it. You should ask about the level of support you will receive, including initial training, ongoing training, marketing support, and assistance with site selection and lease negotiation.

4. What is the franchisor’s track record?

To determine the franchise’s success rate, you need to investigate the franchisor’s track record. This refers to their history of success in operating and growing their franchise system. Understanding a franchisor’s track record can help you assess its ability to support its franchisees and provide a profitable opportunity. This is especially true if you’re eyeing a franchise that’s not as big as Mc’Donald’s or The UPS Store. 

To do this, you can ask a franchisor for a list of their current and former franchisees to ask about their experiences. When contacting these franchisees, you should ask about their experiences with the franchisor, including how responsive and supportive the franchisor was during their time as a franchisee. You should also ask about the franchisee’s financial performance, including revenue and profitability, to get a sense of the potential for success in the franchise system.

5. What are the franchisor’s marketing strategies?

To determine a franchisor’s long-term viability and potential for future success, you need to ask them what marketing strategies they have in place. The road to growth of a franchise depends on this, so you need to ask them about it. Ask them about their vision for the future and how they plan to expand and grow the franchise system. 

You can also ask about new products they want to introduce, if any. You should also ask about their plans for marketing and advertising, technology investments, or any other strategic initiatives underway.

6. What is the franchisor’s growth plan?

Asking about the franchisor’s growth plan can give you a better understanding of its growth strategy and evaluate its potential for future success. A franchisor with a clear and well-defined growth plan may be better equipped to support its franchisees and provide a profitable opportunity for investors. As such, this should be in your list of questions to ask a franchisor.

7. What are the franchisee’s obligations?

Before you venture into a franchise opportunity, you need to know your obligations as a franchisee. This can include operating the business based on the franchisor’s guidelines, maintaining the brand standards, and attending training and meetings, among many others. You need to review the franchise agreement carefully, ask questions, and seek legal and financial advice as is necessary to ensure that you fully understand the obligations and potential risks involved in franchising.

8. What is the exit strategy?

Asking about a franchisor’s exit strategy is vital when considering a franchise opportunity. You should ask about your options for exiting the franchise, any restrictions on selling the business, and the franchisor’s support for reselling the business. It’s also essential to understand the franchisor’s policies and procedures for terminating the franchise agreement. 

Some franchisors may offer support for reselling the business, while others may have strict restrictions on selling the franchise. Understanding the franchisor’s exit strategy can help you make an informed decision and plan for the future of your investment.

9. What are the risks involved?

As with any other business venture, there will always be risks involved. The same is true with franchising as it involves inherent risks, such as competition, economic factors, changes to the franchisor’s business model, and legal and regulatory issues. It is essential to conduct thorough research and seek advice from professionals to alleviate potential problems. Be sure to carefully review the franchisor’s track record, the industry, and the market conditions to decide whether the franchise is a viable investment opportunity for you.

10. What is the franchise’s culture?

Ask about a franchisor’s mission, vision, and values to help you determine if they align with your goals and values. It’s one of the best questions to ask a franchisor. You should also ask how these values are communicated to franchisees and how they are upheld within the organization. A franchisor’s culture can impact the franchise’s success, and by ensuring that it aligns with your own values and goals, you can make an informed decision about whether the franchise is a good fit for you.

Final Thoughts

Investing in a franchise can be easy compared to starting one from scratch. Despite this, you still need to research and ask the right questions before making your decisions. These key questions to ask a franchisor will help guide you on the right path.

For more franchise opportunities and information, browse through FranchiseHow.com.