Before investing in a franchise, one of the most valuable steps a prospective franchisee can take is speaking directly with current operators.  Below are 10 key questions that can help you gain meaningful insight into the business, the franchisor, and the real-world experience of franchise owners.

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     1. Were the costs to open and operate the business consistent with the franchisor’s projections?

Ask whether the actual numbers (revenue, expenses, ramp-up time) aligned with what the franchisor disclosed in FDD Item 7.  As a follow-up, request details about their total startup costs - and whether anything unexpected came up.

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     2. How long did it take you to reach profitability?

This question is essential for understanding working-capital needs and realistic expectations for ramp-up.

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     3. Do other franchisees operate within your territory?

Territorial protections – or the lack thereof - can significantly affect your ability to grow and compete.

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     4. How satisfied are you with the franchisor’s support?

Ask about training, marketing assistance, and the quality of field support.  Encourage the franchisee to give specific examples, both positive and negative.

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     5. How effective is the franchisor’s marketing program?

Does national or regional advertising produce real results?  Do franchisees need to invest heavily in local marketing?  Are they required to use specific vendors, and if so, how transparent are the related fees and costs?

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     6. If you had to do it again, would you still buy this franchise?  Why or why not?

This is often the single most revealing question you can ask.

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     7. How does the franchisor respond when franchisees raise concerns or need help?

Are they responsive and solution-oriented, or slow, inflexible, or dismissive?

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     8. What is the biggest day-to-day challenge of running this business?

Listen for issues related to staffing, competition, supply chain constraints, seasonality, compliance requirements, or franchisor-driven challenges.

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     9. Are you required to purchase products or supplies from the franchisor, its affiliates, or designated vendors?  If so, are the prices competitive?

As disclosed in FDD Item 8, franchisors often earn revenue from required purchases.  Use this question to understand whether prices are inflated or whether franchisor affiliates receive rebates or kickbacks.

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     10. What advice do you wish you had before signing your franchise agreement?

Current franchisees often share valuable insights about negotiating leases, hiring, capital reserves, seasonality, and risks they wish they had better understood.

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     Final Thoughts

     Before purchasing a franchise, it’s a good idea to reach out to as many current and former franchisees as possible.  Toward the end of the FDD, there should be an exhibit listing the contact information for all franchisees in the system as of the document’s issue date, as well as those who exited the system within the last year (though information for former franchisees is sometimes outdated).

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     You don’t need the franchisor’s consent to make these calls, nor do they need to arrange them for you.  In fact, it is sometimes extremely helpful to “cold call” existing franchisees to truly learn about the system.

 

     With that list in hand, use these ten questions, along with any others that matter to you, to help guide your due diligence conversations.