Sometimes, the thought of appearing impolite can prevent us from finding the answers we really need, especially when it comes to business. But if you’re going to invest your time and money in someone else’s franchise, you need to broach the difficult topics. Here are the awkward franchising questions every franchisee should ask.
If you’re nervous about meeting with franchisors and discussing potential investment opportunities, you’re not alone. Most entrepreneurs have shied away from tricky conversations in the past.
However, you need to know you’re putting your money into a reliable business model, and the franchisor will want to be sure they’re picking suitable franchisees to represent their brand. So, conquering any feelings of trepidation or awkwardness is key when it comes to asking questions about franchising.
Awkward (but important) franchising questions
How much money does the average franchise unit generate?
At first glance, a franchise might appear to be profitable, especially if it has plenty of customers. But it may be operating at a loss even if it is achieving high revenue. Aim to find out how much franchisees spend on supplies, rental costs, utilities, marketing and staff wages, for example.
The franchisor should be able to tell you whether the existing franchisees are reaching their sales targets and how much profit they generate in an average month.
How long is the average working day?
Running your own business involves a lot of hard work, and starting a franchise unit is no different. Even if you’re investing in a part-time opportunity, you should try to find out how many hours you’ll need to dedicate to your business in order to make it successful. You don’t want to be hit with a nasty surprise once you’ve parted with your cash and set up a unit.
Of course, it’s important to remember you’ll probably have to put in extra hours during the first few months or years of your franchise journey. The franchisor should be able to describe the requirements and how long it’ll be before you can take a step back.
What’s the franchise’s success rate?
Usually, running a franchise business is much less risky than launching a start-up from scratch, but it’s worth knowing your chances of success. Ask the franchisor what percentage of units become profitable, and how many are unable to reach their break-even point and end up closing their doors. Then, it’s up to you to judge whether you’re happy to continue.
How long is the contract term, and can you renew it?
It's common for franchise contracts to last ten years or more, so you must be sure you’ll be able to commit to your business for a long time. But if you choose the right franchise for you, it’s a good idea to check you’ll have the option to renew your contract when it comes to an end. Some franchisors may offer renewal, while others judge each franchisee separately, depending on the success of their business.
>> Read more:
- 5 Qualities of a Successful Franchisor
- 4 Things Franchisees Never Have Time for But Are Essential for Running a Successful Business
- How to Launch a Franchise and Get Noticed
- 4 Elements of a Successful Franchise
- How to Start a New Business on a Shoe-String Budget
- The Ultimate Guide to Franchising Success
What proportion of franchisees choose to renew their contract?
Having the option to renew is great, but if no other investors have ever done so, you may want to think twice about signing it in the first place. While a single franchisee’s decision not to extend their contract shouldn’t necessarily ring alarm bells, a low overall renewal rate could be an indicator of problems in the franchise.
What proportion of franchisees terminate their contract early?
The answer to this question can be incredibly helpful for prospective franchisees. The early termination of a franchise contract usually comes as a result of problems in the business. And if a high percentage of investors decide to cut off their partnership earlier than expected, you can safely assume there are issues within the franchise system.
Can I negotiate the terms of the agreement?
Franchising is all about consistency, and the franchisor will want to make sure their investors maintain high standards across the business network. However, there is an opportunity for would-be franchisees to request changes to their specific contract terms, so don’t be afraid to try to negotiate on certain points.
Read our guide to negotiating franchise agreements for more information.
How would you describe the franchise’s culture?
While it’s easy to focus on the potential profitability of your future business unit, it's also important to consider the franchise's culture and whether it suits your working style. To really get a feel for the atmosphere of a business, we recommend attending a discovery day and talking to existing franchisees. But discussing the culture with the franchisor is a great place to start when you’re reviewing a franchise opportunity.
You can find out more about choosing a franchise with the right culture for you in our dedicated business guide.
>> Read more:
- Franchising 101: The Complete Guide to Franchise Costs in the UK
- Franchising 101: 6 Top Contributors of Franchise Failure
- Franchising 101: How to Buy a Franchise Business in 10 Steps
- Franchising 101: The Official Franchise Start Up Checklist (Part 1)
- Franchising 101: Top 5 Qualities of a Franchisee
- Franchising 101: 6 Tips for Building Customer Loyalty Through Marketing
- Franchising 101: The Pros and Cons of Franchising Your Business
How do you resolve disputes within the franchise?
Here’s a franchising question you may not have thought to raise. No one wants to think about potential disputes with their peers, but issues crop up from time to time. Knowing your franchisor has the maturity, communication skills and insight to quickly resolve issues before they get out of hand is important when you become a franchisee.
Does the franchise agreement have a cross-default clause?
If you launch multiple franchise units, your contracts may include a cross-default clause. This condition allows the franchisor to default on all your agreements if you breach the terms or fail in just one of your businesses. As you can imagine, this turn of events can be devastating, particularly as material breaches can happen after a single employee makes one mistake.
Sometimes, franchisors are willing to remove cross-default clauses from their contracts, but we always recommend you get legal advice when negotiating franchise agreements. They’ll be able to offer expert guidance when you’re unsure whether to proceed with a franchise investment.
Running a franchise business
Here at Point Franchise, we aim to provide useful advice across every aspect of franchising. We’ve created a huge selection of informative articles designed to help those interested or involved in the franchise world. Browse our latest releases or use the search box to find answers to specific franchising questions.
Alice Tuffery, Point Franchise ©