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Key Questions to Ask When Buying a Franchise
When researching a franchise purchase, the questions you ask will help you better prepare for the journey ahead. The questions you ask, and who you direct them to, will vary depending on where you are in the buying process.
Start with yourself, look at the Franchise Disclosure Document (FDD), and think of questions for the franchisor. And then gauge what ownership will look like through real-world experience.
Have honest, thorough discussions with those who have that experience. Focus on how the franchisees view the franchisor based on the last 2-3 years. This step will give you the most accurate barometer of your potential success in the franchise system.
This guide covers the questions to ask before buying a franchise, starting with yourself and ending with your attorney and accountant.
Questions to Ask Yourself
Before you enter the world of franchising, assess your needs and whether they align with a franchisor’s. While you gain support, instant brand recognition, and a competitive advantage, you will not have full control over certain aspects of the business as a franchisee.
Here are some questions to ask yourself to help you determine if you’re ready to be a franchise owner:
1. Am I excited to follow a proven business model and have support?
If you have an entrepreneurial urge to constantly redesign products, change marketing, or rewrite core processes, a franchise may not be for you. If following a proven playbook sounds exciting to you, then this is likely the path to take.
2. Do I have the necessary financial resources to make the initial investment?
You must understand the financial requirements of buying into a franchise to determine whether you have enough working capital to survive until the business turns a profit. There may also be franchisor standards concerning proof of liquid assets and net worth, which can be found in the Franchise Disclosure Document (FDD).
3. Am I passionate about the franchise’s industry, products, or services?
Be honest with yourself, as running a franchise requires intense, long-term daily commitment and genuine interest. These requirements will impact your resilience, motivation, and operational success.
4. Can I commit the required time and energy it takes to make the franchise successful?
Remember, owning a franchise is not a passive investment or a standard 9-to-5 job. It comes with a heavy initial workload and operational rules you must follow.
Questions to Ask When Reviewing the FDD
When buying a franchise, reviewing the Franchise Disclosure Document (FDD) is crucial. The FDD includes 23 standardized items that detail costs, legal history, obligations, and performance.
1. What are the franchisor’s obligations to me?
Ask what financial, operational, marketing, or site-selection assistance the franchisor actually provides so that you have clear expectations and can plan accordingly. Look to item 11 for more information.
2. How accurate are the startup costs?
Compare the FDD’s estimated initial investment (buildout, equipment, working capital, permits, etc.) against real-world data from current owners. Look to item 7 for more information.
Questions to Ask a Franchisor
Next, you’ll want to learn whether the franchise you’re interested in can help you achieve your entrepreneurial needs and aspirations. It’s important to frame the discussion around what current franchisees are doing and what support they get from the franchisor.
1. Can you provide detailed information about ongoing fees, including royalties and advertising costs?
This information will help you budget properly and ensure the franchise is sustainable for you. While answers will vary, ongoing franchise fees typically include royalties (4% to 12% of gross sales) and advertising/marketing fees (1% to 4% of gross sales).
2. What kind of training and support do you offer to new franchisees?
This is the most important question you should also ask current franchisees. Support is one of the main reasons people choose to invest in franchises. An independent business owner must face the world on their own, but franchise owners benefit from the franchisor’s support. You should inquire about support for training, marketing, and operations.
3. How often do you update your franchise model and how are franchisees involved in these changes?
The world does not stand still. Neither should your franchisor. The best franchisors are highly communicative, forward-looking, and focused on implementing new, impactful services and programs for the benefit of their franchisees. Examples of new programs include property technology, certification programs, or innovative email campaigns.
Additional questions to ask a franchisor:
- Are there exclusive territories for franchisees, and how are they determined?
- Can you provide earnings claims or any financial performance representations?
- How long has your franchise system been in operation, and how many franchised units are currently active?
- What is the process for renewing the franchise agreement, and are there any fees associated with renewal?
- How do you handle conflicts or disputes with franchisees?
- What kind of marketing and advertising support do you provide?
- How has your franchise grown historically, and what are your future growth plans?
- What is the success rate of existing franchises?
Questions to Ask Franchisees
To get the most honest, transparent perspective of a franchise, you should talk to current franchise owners about their experiences. Bring the FDD and review all items related to costs and ongoing fees, company background, performance and growth, exit strategy, and financial stability.
Here’s what to ask:
1. How long have you been a franchisee?
One of the first questions to ask current franchisees is just how long they’ve been running their business. If someone has run a licensed location for a long time, it’s a good sign the business model is durable.
2. What level of support do you receive from the franchisor?
A good answer should detail clear, structured assistance spanning pre-launch, grand opening, and ongoing operations, backed by documented proof in the Franchise Disclosure Document (FDD).
Additional franchise validation questions to ask:
- Is there initial and ongoing training?
- Is the franchisor forward-looking and introducing new programs and services to help its franchisees grow and adapt to market changes?
- What level of support do you receive from the franchisor?
- What were your initial and current gross revenues, and how long did it take to become profitable?
- Did you encounter any hidden fees?
- Can you say with confidence that the franchisor invests in training and certifications?
- Does the franchisor have an in-house learning platform through which you can gain ongoing training?
- Can you give me examples of recent initiatives from the franchisor to help franchisees with training?
- Do you feel that your franchisor understands the importance of marketing on behalf of its franchisees?
- Does the franchisor understand how to do social/digital marketing?
- Are you satisfied with the franchisor’s digital/social media marketing?
- Does the franchisor support print marketing and provide access to branded apparel and promo products?
- Do you get access to all operational systems to run your business?
- Do you get technical support from your franchisor?
- Is the franchisor responsive?
- Empathetic?
- Collaborative?
Questions to Ask Your Attorney and Accountant
Seek specialized guidance before buying a franchise to protect yourself. Ask a franchise attorney and a franchise accountant to clear up any loose ends before you sign any binding agreements or pay any fees.
Questions to ask could include:
- Did you spot any red flags, unusual restrictions, or high-risk clauses in the FDD or Franchise Agreement?
- Under what exact conditions can the franchisor terminate my agreement, and what happens to my investment if they do?
- What personal assets am I putting at risk through guarantees on the lease, bank loans, or the franchise contract?
- What are my rights if I want to sell, transfer, or abandon the franchise, and what transfer fees apply?
- Do the FDD Item 7 startup and working capital estimates match realistic operational costs for this market?
- How are initial franchise fees, ongoing royalties, and advertising fund contributions treated for tax purposes?
FAQs
What are the most important questions to ask when buying a franchise?
Buying a franchise requires thorough research into costs, support, legal documents, and the real-world experiences of current owners.
What to consider before buying a franchise?
Before buying a franchise, you must evaluate the total financial investment, review the legal framework, and vet both the franchisor and existing owners.
What are the best franchises to explore as a beginner?
Home service franchises, cleaning services, and low-cost educational concepts are widely considered the best options for beginners because they feature low overhead, simple operational models, and strong franchisor training.
Next Steps
While you’re creating your list of questions, refer to the FTC’s Consumer’s Guide to Buying a Franchise to help you along the way.
As you do your research, stay mindful of the red flags to watch for, like vague answers, declining margins with no explanation, missing items from the FDD, no evidence of franchisor brand reinvestment, etc.
Seeking a Low-Cost, High-Margin Franchise?
If you’re ready to invest in a home inspection franchise that is ranked #1 nationwide, the experts at WIN Home Inspection can help you navigate the buying process. You can schedule a free consultation with us by filling out this contact form.
