As an entrepreneur, it is nice to know that you are now ready to step-up your game in the industry. Given the growing opportunities and the booming industry of franchising, it is no doubt that you are also interested in becoming a franchisee.
Now that you are ready to buy a franchise, you must keep yourself updated with some of the most asked questions towards franchisors.
Franchise’s Discovery Day
Before a business deal gets signed, the franchise’s Discovery Day or the one-on-one talk with the franchisor plays a great role in your decision-making.
This meeting lets you understand the business and why you must become a franchisee. In return, it is a way for the franchisor to check if you’re a good fit in terms of knowledge, experience, attitude, and culture.
Must-Have Questions to Franchisors
Hence, here are some of the must-have questions you must ask a franchisor.
1. Ask about the litigations that the business has faced.
It pays to do research first about the business. If you get information that the business has faced litigations, ask about it. Moreover, if the franchisor has many franchise failures and is involved in a bankruptcy, then you must ask about it.
2. What are your competitors, especially in the local market? How should we address them based on your market analysis?
Asking this question will give you an idea about how strong the current market competition is. Franchisors usually have their action plans and marketing strategies to overcome this concern.
However, its effectivity still needs to be evaluated and tested directly on the market. A good franchisor must have an answer to this question.
3. What kind of changes are expected based on the business concept? How about marketing and operations?
Of course, even if the business is well-established, there are still repercussions that may come in the way. Such consequences may cause changes to the business, so it will be helpful to have some background on the possible changes, especially in the marketing and operation side.
4. How will you respond to the competitive threat posed by current competitors? Potential competitors?
Again, going back to competitions. There are no what if’s. The franchisor must bear in mind that there is always a pose of competitive threat in the market, no matter how strong the business is now.
The business must always stick to its unique selling point (USP) and avoid impulsive decisions to join the trend without evaluating first its impact on the current business model.
Moreover, potential competitors are like spies. They will continue to delve more information about the business, and it is the franchisor’s job to protect the identity of the business.
Hence, there is a need to leverage all products and services offered by the business at all times.
5. What’s the biggest competitive threat in the marketplace? What’s the biggest opportunity?
When it comes to this, we have an important note for you. Remember that you must pay close attention here. If you feel that you don’t get a substantive answer from the franchisor, it is either you’re being sold, or you’re dealing with someone who simply doesn’t know the answer. Well, in either case, always be wary and rational.
Moreover, at this point, any franchisor should have presented their Strengths, Weaknesses, Opportunities, and Threat (SWOT) analysis report to give you a more detailed overview of the threats in the market. At the same time, you get to know the opportunities that can possibly happen once the business thrives in the economy.
6. Who is your customer at the end-user level? What’s happening to this market?
Every business knows its customers. Given this, the franchisor should give you a definite answer to this question. Experienced and dedicated franchisors have details about the customers at the end-user level and the market itself. There is no doubt that they can be a reliable franchisor for the business you want.
7. What are you really selling?
Well, this one’s obvious. The franchisor must know exactly the product that he or she is selling. If it is a service, then it also important the franchisor can define the kind of service that he or is providing to the people.
8. What’s happened to the market over the past five years? To your market share? To your strategy? What new competitors have surfaced, and why?
If the franchisor is already doing the business for many years, there is no doubt that there is already a five-year evaluation available for future franchisees. This must include details about the market share of the company and the strategy employed in the business.
Such evaluation must also include assessment done about the competitors within the past years and their impact on the business.
9. Who are your major vendors? Do they give terms on initial inventory? What terms? What terms do they provide on ongoing purchases?
This one is more on the operations side and the availability of the resources for the business. It is essential that a franchisee must ask the franchisor about their vendors and the terms of business doing with them.
10. What are you doing to secure the best prices on products?
In terms of this, you must also know about the negotiation on service and equipment vendors which includes the insurance, office equipment, etc.
11. How much do you spend on research and development? How much as a percent of revenues?
If you think about research and development and its impact on the business, this is actually helpful. Nowadays, trends and innovations are everywhere and to take leverage over the others, there should be enough research and development.
12. What are you trying to accomplish with your advertising? Who’s your agency? Why did you choose them?
Advertising is also a must and not just an unnecessary cost. Franchisors should work on this aspect and choose the best agency to work with.
13. Are there any plans to sell the business in the next five years?
It just right for the franchisor to share with future franchisees the plans about the business, specifically if the franchisor has a plan to sell the business to another big company or to merge with them in the future.
14. Where do you see the company five years from now?
This question is part of the franchisor’s long term goal. Of course, it should have something to do with the plans for any major strategic changes in the concept of the business. Or, if the franchisor has the plan to sell the company or pass it on to their heirs.
15. How are you attempting to differentiate yourself in the franchise marketplace?
Sounds cliche but yes, you must ask the franchisor this question to gauge his or her intentions to differentiate the business in the franchising industry. Remember that everyone is looking for something that is unique among businesses.
16. Are any major changes to management planned?
The franchisor must be transparent to any franchisees. Any plans for major changes in the management should be discussed to the franchisee for transparency as business owners.
17. What support do you provide to franchisees that help them build revenues during their first six to 12 months of operation?
You must know the franchisor’s answers to this question. Technically, franchisors give training to the franchisees in the management and operations of the business. However, the best franchisors can also give other training to the franchisee.
18. In what ways do you collect best practices and share them with franchisees in your system?
Ask the franchisor for a list of best practices that they observe in the company. Let him or her discuss these practices and how they impact the business in the long run.
19. What key performance indicators (KPIs) do you share with franchisees? In what way is the information shared?
Speaking of the KPIs, these should not be overlooked by the franchisor. It is not bad to trust the franchisee with his or her capability to run the business well but having the KPIs will save you from any trouble and will keep you on track of the business’ progress.
20. What is your biggest franchise disaster and why did it occur? What’s been done to prevent a reoccurrence? What’s the name of the franchisee involved?
As a franchisor, it is not bad to reveal this kind of information to your future franchisee. Hence, a franchisee should be brave enough to ask this and get the necessary information about the incident and how did the management resolve it.
21. What’s the best thing you can say about each of your competitors? What are their strengths and weaknesses?
Again, going back to the business SWOT analysis, a franchisor must be able to discuss this topic in detail with you. Talking about competitors could be tedious but it is part of being a franchisee. You need to build your foundation well before entering the business.
22. How long is the return on investment?
Return on investment (ROI), also known as payback period, is the ratio between the money invested and the returns realized by the business.
Most new businesses as well as franchises go through a startup phase where money is lost for a certain time before reaching the break even point and become profitable. This initial growth curve is usually fairly steep. Hence, the usual timeframe for a business to mature is 2-3 years. So, if discussing with the franchisor the ROI, bear in mind that its computation starts on the third year of operation.
However, it could happen that certain franchise business model may have shorter time frames, so be sure to ask this question to your franchisor.
In a nutshell, the main point is for you to become inquisitive and curious as to how the business works. Franchisors are there to help you out if you decide to join their business but know that there are limitations to the support that they can give.
However, if you are able to gauge most of the predictable questions during Discovery Day, it will save you more time and make you prepared enough to face the challenges of the business. Moreover, it helps you decide whether to continue on the business venture or not.
Discover how the Franchise Market team can help you with this. Browse the franchise listings now!
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Avoiding Scams, Making Smart Investments, and Better Decisions
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