Introduction
As a prospective franchisee, you are probably expecting to ask many questions of the franchisor – and franchisors will anticipate and appreciate your inquiries. Another important part of the due diligence process will be to speak with those who know the day-to-day operations of the franchise the best: the existing franchisees.
When you receive a franchise system’s disclosure documents (which are required by law in certain provinces to be provided to you and by the Canadian Franchise Association’s Code of Ethics for members), included in the information should be a list of current and former franchisees. Be sure to speak with them for their thoughts and an inside look at what it takes to be a successful franchisee in their system.
Investing in a franchise is a major decision and, in addition to assistance from franchise professionals such as lawyers, Chartered Accountants, and consultants, talking to existing franchisees is a vital part of the final stage of any potential franchisee’s investigation process.
Here are a few questions to get the conversation started.
Were There Any Unexpected Costs?
While the franchisor will typically outline the general costs of investing in the franchise system (initial franchise fee, start-up costs, royalties, etc.), there may be some other costs that aren’t being calculated into the total investment. Ask existing franchisees if they ran into any extra or unexpected costs. If they did, find out what they were for. Ask yourself if these unexpected costs were unique to that individual and their situation (for example, the construction of their location was delayed due to inclement weather) or if the extra costs were something several franchisees encountered.
How Effective Was The Franchisor’s Initial Training Program?
Ask existing franchisees about their experience with the training the franchisor provided during their start-up phase. Get the specifics: how long was the initial training? Where was it held – on site, at the franchise’s headquarters or somewhere else? How comprehensive was it? Was it hands-on, in classroom, online, or were a variety of teaching methods used? Was the cost of training included in the franchise fee or was there an additional cost involved? In addition to operational instruction, are franchisees tutored in the administrative side of the business (payroll, ordering, accounting, etc.)?
What Is The Franchisor’s Ongoing Training Program Like?
What Does It Include And Not Include?
A franchisee’s training and learning is expected to be an ongoing endeavour. Find out what ongoing education and training is provided by the franchisor. What does it include? There could be a mix of approaches, including conference calls, online courses or webinars, mentoring, seminars and conferences, and supplier training. Find out how effective the ongoing training is and how it helps keep the franchisees abreast of what is happening within the franchise system, its industry and its marketplace.
How Effective Is The Franchisor In Responding Promptly And Helpfully To Questions You Have Or Advice You Seek?
Answers to this question will give you a better idea of the communication between franchisor and franchisee. In addition to the speed and effectiveness of the communication, what channels are available for franchisees to contact their head office and their franchisee peers? How often does the franchisor ‘check in’ with franchisees? How can franchisees get in touch with head office support – is it available via phone, email, social media, etc.? What avenues are available for franchisees to communicate with one another? A franchisee advisory council and annual franchisee conference are just two examples of ways franchisees can get together and share ideas, opinions, and successes.
How Profitable Is Your Franchise As Compared To Initial Expectations?
Even the most forthcoming franchisees might be hesitant to discuss their franchise’s financials. By framing your questions to look at the ‘big picture’, you can get the information you need without franchisees having to supply the intimate details. Find out how their reality compares to their expectations going in. Ask how long it took for the business to break even and how long it took to begin generating a profit. This information will be invaluable when creating your own business plan and sketching out your financials.
What Have You Done To Make Your Franchise Successful?
This question will give you a good look at what is expected of the franchisee to make the location a success. From local marketing and community involvement to working hands-on in the business every day, it’s important to know the nitty-gritty of what drives a franchise’s achievements outside of the brand’s proven operating system. You can then ask yourself if you are prepared to put in the same time andeffort.
Would You Recommend This Franchise?
This is probably the most telling of all the questions you could ask because it encompasses all aspects of the franchisee’s experience in the business thus far. The answer to this question will let you know if the system’s existing franchisees are just as enthusiastic about their investment as they were on the day they signed the franchise agreement. Essentially, you are asking them if they had the chance to do it all over again, with the knowledge and experience as a franchisee that they now possess, would they still invest in this franchise?
Conclusion
Keep in mind that franchisees are busy running their businesses. To ensure you get a chance to ask all of your questions, make an appointment to speak with them at a convenient time. Remember to get clarification on any points you are unsure of and make notes that you can refer to later on. Check out the CFA Info Kit’s “Checklist for Franchisees” (available at www.cfa.ca/Publications_Resources/CFA_Info_Kit) for even more questions to ask.
If you would like to engage Joe Truscott with respect to the above, please contact Joseph A. Truscott, Chartered Accountant at 905-528-0234 ext: 224, or email Joe at [email protected].
January 2013
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