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Questions To Answer Before Buying A Franchise

The first step to owning any franchise, including a restaurant franchise, is research. There are many different restaurant franchise opportunities available and it is important that you put in the effort and do your due diligence. When you are looking at a franchise it is important to do the investigation so that you know what you are getting into. A little homework at the beginning will avoid surprises down the road. You want to go into the opportunity you select with both eyes open.

No franchise is perfect. No opportunity is perfect. Your goal is to uncover the strengths and weaknesses and make an informed business decision. Reputable franchisors will assist in you learning about the opportunity.

There are several things that a potential franchisee should look for in a franchise system. An ideal system would consist of the following key fundamentals.

A focus on the Customer. Strong franchisors listen to their defined customer and build the franchise concept around their expectations, wants, needs and desires. The franchisor will then measure how well they are doing in serving and satisfying the customer. Priorities will be to get and keep customers, build goodwill which will result in the customer being the best form of marketing, and offering a wide range of products and services prompting the customer to buy more often.

Excellent Franchisor/ Franchisee Relations. Leading franchisors constantly promote a franchise-wide strategic-partner relationship. Everyone should work together towards common goals of disproportionate market share, enhance brand image and mutual profit.

Superior Leadership. The management must provide the kind of leadership that earns respect and trust of franchisees. Leadership should insure an appreciation for the operating system, help internalize the desire to follow the system and result in the franchisee’s profitability and success. Finally they should provide a clear vision and have clearly defined the company’s values.

Excellent Franchisees. Successful franchisors believe franchises should not be sold, but awarded. The strong franchisor will have an efficient system for recruiting and awarding franchises to people who will:

  • Build the value of the brand
  • Follow the proven operating system
  • Use the ongoing support to dominate in local markets

A Strong Business and Financial Plan. To succeed in franchising the franchisor must have a plan for systematically monitoring the franchise operating information and analyzing return on investment from the development, operations and training departments.

A Focused Staff. Successful franchisors will have a professional staff who will work in harmony with franchisees to help them deliver excellent customer service, build market-share and work with fellow franchisees to dominate local and regional markets.

Effective Training Programs. A strong franchise system will have a carefully planned training program to assimilate new franchisees as smoothly as possible into the organization. Successful franchises will also provide ongoing programs which will help further develop existing franchisees and reinforce the purpose and practice of its systems and strategies.

Effective Manuals. At a minimum, the franchisors manuals should clearly and concisely document a proven operating system and allow franchisees to duplicate success. All aspects of the business model are documented so that nothing is left to chance.

How will a potential franchisee know if the system they are investigating is solid? How important is the franchise’s concept to the system’s overall strength?

The system is strong if it has the above mentioned items fully developed. Clearly a franchise system with an established recognized brand and extensive locations across Canada is a good indication of a strong system, but there are many start-up franchises that will be equally as strong and present a great opportunity. The established franchises often are sold out or have a high initial investment, unlike a strong start-up concept. Take C-Lovers Fish & Chips for example, a strong start-up concept out of British Columbia. Established over 30 years, they have all the benefits of a nationwide wide brand without the heavy price tag, as they are only just starting to expand out of British Columbia. Ultimately, look at the above mentioned items and ensure that the key fundamentals are in place. You will want to ensure that if it is a start-up franchise that they are well capitalized. Ask to see their financial statements.

Look at the business model of the franchise and ensure that it is not a fad. Sometimes fads can be hard to spot. You want to ensure that it is a growing market and not limited to a shrinking audience.

When investigating a restaurant franchise opportunity, be sure to review their disclosure document and legal agreements. Ask to see the table of contents of the Operation Manuals so that you can get a sense of their depth and thoroughness.

Who should a potential franchisee speak with to find out the strength of an organization? What are the best/most appropriate questions to ask?

People that you will want to speak with regarding a restaurant opportunity include the franchisor’s key executive and support staff. These are the ones that you are entering into a long-term relationship with. You want to ensure that you are comfortable and will be able to work with them. It’s also important that you share their values and the long-term vision.

Talking to existing franchisees is one of the most reliable ways to get validation of the franchise system you are researching. Be sure to talk to at least 3 franchisees, or more, to ensure you are getting a broad picture. Recognize that some negative feedback is normal, especially in a young franchise. Nothing is perfect.  Don’t use this as a reason to say no to the opportunity. Instead it is a step of doing your due diligence. Determine if you can live with the pro’s and con’s. Determine if the franchisor is actively addressing the challenges and evolving? You can then move forward with confidence knowing that you are making an informed decision. Talking to existing franchisees in the system gives you a different perspective of the organization and the business. It’s a perspective from the front lines, the operators who are dealing with the business on a day-to-day basis.

Existing franchisees on the most part are willing to share because they have been in the same place where you currently are. They have at one time looked at the franchise opportunity to determine if it was right for them and probably went through the same process and called existing franchisees. They want to provide you with the information that they had sought when they were making their decision. They are also interested in the quality growth of the franchise. They have an interest in assuring that the system grows with quality franchisees that are fully informed.

When calling a franchisee explain who you are and the purpose of the call. Ask the existing franchisee if he could schedule 30 minutes of his time to answer some of your questions. Because he/she is operating a restaurant, he/she may be busy when you originally call so you will want to schedule another time when it is convenient for the two of you.

Some key questions to ask:

General

What is it that attracted you originally to the franchise?

What have you found to be the biggest benefit?

What was the biggest surprise once you got involved in the franchise?

What has been the success rate of franchisees over the past three years?

Who is the most successful franchisee? Why?

Who is the least successful franchisee? Why?

Did you have any previous restaurant experience?

 

Financial

How long did it take to break even?

What was the total investment to get the restaurant started and to the point of break-even?

What is your profitability today? Is it what you had expected?

What is the seasonality of the restaurant like?

 

Operations

How much time do you spend a week working in the restaurant?

How many employees do you have?

What has been your greatest challenge in the operation of a restaurant? How have you dealt with it?

 

Support

How has the support from the franchisor been?

What additional support would you like to see?

Has the training been adequate? How could the training provided by the franchisor be improved?

 

Relationships

How often do the franchisees get together and what is discussed?

What disputes, if any, have you had with the franchisor? How were they settled?

Are you aware of disputes that other franchisees have with the franchisor?

 

Other

What is it that you didn’t know that you wish someone had told you before you proceeded with the franchise?

Who else would you recommend I talk to?

Is there someone who was a franchisee but is no longer in the system that you could refer me to for another perspective of the company?

If you were to do it over again would you make the same decision? Why or why not?

 

Wayne Maillet Restaurant Franchise Opportunity SpecialistWritten by Wayne Maillet, president of Franchise Specialists. Wayne is a leading Canadian franchise management consultant and published author of the book Franchising Demystified. You can order the book athttp://www.franchisingdemystified.com/   Wayne Maillet can be reached at 604-941-4361