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Existing Franchisees – An Excellent Source of Information

The purchase of a franchise represents a substantial investment that will have longstanding implications for both you and your family.  Prior to selecting a franchise and deciding to move forward‚ you must engage in an active “due diligence” evaluation of the franchise system and determine if its is right for you.  Existing franchisees are excellent sources of information when evaluating a potential franchise investment.

What Questions Should You be Asking Existing Franchisees

Three “initial” questions that you should be asking existing franchisees‚ include:

  1. Were you Satisfied with the Franchisor’s “Pre-Opening” Training and Support?  One of the advantages of purchasing a franchise‚ in theory‚ should be the support and training provided by the franchisor.  The training and support that you receive prior to opening your franchise will be critical to launching a successful franchise. If current franchisees are not satisfied with the pre-opening training and support provided buy the franchisor‚ seriously question whether this is the right franchise for you and speak to your franchisor lawyer about adding specific training guuarantees to your franchise agreement should you decide to go forward.
  2. Are you Satisfied with the Franchisor’s “On-Going” Training and Support?  While many franchisees open their business to a successful launch and impressive sales‚ on-going support is crucial.  A good franchise system is characterized by constant communication and support between the franchisor and its franchisees.  If current franchisees are not satisfied with the on-going support offered to them‚ again‚ you must question whether or not this is the right franchise for you.  Certainly raise this issue with the franchisor’s sales people and your lawyer.
  3. Do the Numbers Make Sense? In other words‚ after paying royalties‚ advertising fees‚ product costs and operating expenses does the business earn a profit?  This is an apparent and critical question that too many prospective franchisees fail to consider and evaluate. When focusing on this issues ask as many questions as possible and speak to as many franchisees as you can.  Gather information and then discuss this issue with both your business accountant and franchise lawyer.

Don’t Stop There

In addition to these initial questions you should have many other focuses based on the particular franchise that you are considering.  I suggest that you write down a list of your expectations and then – prior to signing any franchise agreement – seek out and obtain as much information as possible to determine whether or not the franchise that you are considering is right for you.  Your decision should also be based on a candid discussion with your franchise lawyer and a thorough evaluation of the franchisor’s disclosure documents.

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By Charles Internicola February 3, 2014

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