Home > Article > John McGavin

Blueprint for Success - Part 7

Written by : John McGavin
2008-02-15

Tools for structurally sound decisions

Ask Franchisors to

COMPETITIVE ADVANTAGE OF PRODUCT OR SERVICE

Ask the representative what makes this business more attractive to you, as an owner, and more attractive to a customer.

  • How is your system better than competitors?
  • Who are the competitors?
  • How does your business match up?

    TIME TESTED, STANDARDIZED FRANCHISE SYSTEM

    Ask the representative to describe in broad terms how the system works, how long they have been at it, and what improvements they have made recently. Ask them to describe the system.
  • How long have you been franchising?
  • How many franchise units do you operate?
  • How many units have you closed in each of the last three years? Why?
  • How many units have been transferred or sold in each of the last three years? Why?
  • How many units have you opened in the last three years?
  • How many units do you plan to open in the next three years?
  • What is the function of the business?
  • What is the function of the owner?
  • What is the initial investment?
  • What do we get for that?
  • Please describe any fees you have.
  • Do you have an earnings claim? If so, what is it?
  • What improvements have you made in your business recently?

STRONG FRANCHISOR SUPPORT

Ask the representative to describe the support: initial and on-going training, 800--help-lines, field support, annual meetings, local meetings, purchasing, marketing, promotion, etc.

  • Describe the support you provide franchisees.
  • What is the initial training like?
  • How long is it?
  • What support is available after the business is open?
  • What kind of continuous support is there?
  • What will I hear from the franchisees on this subject?

FINANCIAL STRENGTH AND MANAGEMENT EXPERIENCE

Ask the representative to comment on both of these areas. His comments will help you to understand the Offering Circular when you have the document.

  • In layman's language, describe the financial strength of the franchise.
  • About how much revenue comes from initial franchise fees?
  • How much from royalties?
  • Is the franchise publicly traded?
  • How has the stock performed?

MUTUALITY OF INTEREST BETWEEN FRANCHISOR AND FRANCHISEES

Tell the representative that you will be asking franchisees about this, but you would like to hear his comments, and also what you might expect to hear from the franchisees. Of course, what you want is a system where the two interests are locked together!

  • How will the franchisees describe their relationship with the franchisor?
  • Is it supportive?
  • Is it combative?
  • Have there been any lawsuits or arbitration?
  • What was the issue, and how did it end?
Please prepare any additional questions you wish along these lines. Exploring these areas will introduce you to the representative as a serious and thoughtful prospect — exactly the type any franchisor wants in his business. And it will give you good information in the critical areas of franchise selection, which will help you during due diligence.
’s to Ask Franchisee

These questions are just suggestions. Add whatever other questions you wish. Do not expect franchisees to return calls. Remember you are a stranger asking for a favor, so ask when you may call them. Use a warm, conversational tone, but follow the outline of the questions. Write the name of the franchisee, his/her telephone number, and the date of the call on the top of this sheet. Thank the franchisee for his/her help.

  • How long have you been in the business?
  • How are you doing in your business?
  • Are you pleased with your earnings?
  • If the franchisor made an earnings claim, are your earnings close to that earnings claim?
  • Are you working full-time in the business?
  • Do you see your volume growing?
  • What is your best estimate of your annual growth?
  • Do you own, or would like to own, additional units?
  • Does your location meet your customers' needs?
  • Who selected your site?
  • How do you rate the franchisees' relationship with the franchisor?
  • The management of the franchise?

  • How would you rate your initial training?
  • Ongoing training?

  • How would you rate your ongoing support?

  • If you need assistance, do you get it easily?

  • How do you rate the marketing and advertising and promotional programs?

  • If you had to do it again, would you buy this franchise? Would you like to own more units?

  • Would you share some of your monthly costs of doing business with me?
    Rent
    Utilities
    Advertising and Promotions
    Inventory/Cost of Goods
    Labor /Payroll
    Insurance
    Other

  • How difficult is it to find, train, and retain employees?

  • How much can I reasonably expect to earn in my first year?
  • Second year?
  • Third year?

  • What do you like best and least about this business?

  • What else should I be asking about?
Other articles on Columnist franchise
If franchisors are reluctant to negotiate the terms of their franchise agreements, what is the point of having it reviewed by a franchise lawyer before signing? Consider The Following Issues BUYING A READY-MADE BUSINESS IS APPEALING TO MANY MID-LIFE ENTREPRENEURS BY JAMES PASTERNAK