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    14 Important Questions to Ask Before Buying a Franchise

    Buying a franchise means you do not have to start up a business from the ground up. You can work under an established company’s name and brand, and you have the right to use its products and services. Buying a franchise allows an individual to start a business with considerable help and instruction from the Franchisor or Sub-Franchisor.
    Opening a business on their own is a scary prospect for most individuals, and if they do not have much business experience, they could come up against some unexpected obstacles.

    Overall, franchises have a higher success rate than do independently owned businesses. Franchises offer a proven concept and training programs. Franchises continue to be a dominant force in many industries, generating billions in sales annually. The dream of owning your own business is stronger than ever before, and franchising is an exciting part of that dream. With so many people willing to pay for convenience and service, the time has never been better to get into a business that fills those needs. Many potential questions you might think to ask a franchisor are likely to be addressed by information provided in the disclosure document.

    What the disclosure document doesn't disclose

    In addition to reading the disclosure document and undertaking your due diligence, the following list of questions considers what else you should be asking the franchisor. Take note of the responses to all questions you ask as well as who provided the details and on what date.

    1. What financial data can the franchisor provide to assist me in putting together a detailed and relevant business plan? What sales turnover and profit should I expect over the first 12 months by following the system? (This is a variation of the usual “How much money will I make” question that most potential franchisees like to ask, but to which franchisors are generally reluctant to provide a response).

    2. Can you provide actual data from any existing company-owned or franchised operations? If so, please also indicate the overall ranking of these operations for sales performance compared to the rest of the network.

    3. Who founded the business, when, where and why? What is the founder’s involvement in the business today?

    4. Can the franchisor provide a typical training schedule? Does the training include an assessment of my ability to do the tasks required, and if not, how is a franchisee’s competency to operate the franchise determined?

    5. Can the franchisor provide a typical field support schedule and details of the frequency and nature of support available to franchisees, from when I first open the doors, and ongoing during my involvement with the franchisor?

    6. What is the franchisor’s leasing policy? (ie. Who holds the lease if it is to be a site-dependent franchise). If the site is to be leased from the franchisor, what (if any) mark-up is the franchisor charging on the rent, and how can the franchisee be sure that their rent is ultimately being paid to the landlord?

    7. What ongoing learning and business growth opportunities are available to franchisees?

    8. What is the average length of a franchisee relationship, i.e. the length of time that a franchisee stays in this system?

    9. What is the franchisor's average staff turnover, i.e. the length of time that employees stay with the franchisor, including field support personnel?

    10. What proportion of franchisees who left the system in the last three financial years (the required disclosure timeframe) made a capital gain when they exited the business?

    11. What franchise and industry-specific training or education has the franchisor and its personnel undertaken in the last 12 months?

    12. What franchise and industry associations or trade bodies has the franchise system and franchisor joined, are these memberships current, and have these bodies ever refused membership or disciplined the franchise system or franchisor?

    13. What current and future potential competitive threats might affect the franchise, and what are the franchisor’s plans to combat these?

    14. Given that disclosure documents can be up to 12 months old if they are updated annually, if the franchisor were required to generate an updated disclosure document today, what information would change?

    Keep in mind that the information provided by the franchisor, or any of its representatives, is always intended for information and guidance purposes only, and constitutes no guarantee, warranty or other representation of actual or expected financial results. It is the responsibility of the franchisee to conduct an independent investigation of the business and to consult their own franchise consultant/accountant/attorney, about the potential benefits and risks associated with a new business venture.

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