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Better Safe than Sorry:  Franchisors Be Prepared for These Questions

Published on February 15, 2022

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After a franchise prospect has submitted their franchise application and deemed qualified as a franchise candidate, they will continue through the franchise process. During this time, it should be expected that the candidate could ask some questions that could determine whether they will continue their interest in becoming a franchisee.

It’s been my experience that the hard questions will usually be asked before Discovery Day. In fact, my development staff knew that a Discovery Day visit was for highly vetted franchise candidates. It was not to be used as a “Dog and Pony Show” but rather to enable the candidate to meet the franchise team and complete the franchise transaction

Although there are differences among certain franchise brands, I’ve narrowed the questions down to those most often asked. Some could apply to a startup franchise, emerging or a mature franchise. If there is a possibility one or more of these questions might be asked, then be prepared to provide the proper responses.

  • In the FDD, franchisor senior management doesn’t disclose any experience in franchising. How has the franchisor compensated for this lack of industry experience? More common in a startup or emerging franchise brand.
  • There have been many lawsuits for a franchise this size. Have they been resolved? Why has this happened? How does your franchise avoid lawsuits? Do you have a dispute resolution process?
  • I know that your competitors have a lower initial franchise fee or royalty fee than you, why are yours higher?
  • There is no Item 19 financial disclosure. For a franchise with 50 units, why not?
  • Your financial disclosure only shows average revenues, why don’t you show franchisee expenses? Gross margins?
  • Why has new franchisee growth been so low? You have almost an equal number of franchisee terminations as new franchise locations, why?
  • Your territories are smaller than some comparable franchises, why? Have you done any market studies for territories? If not, why? Are all territories the same size? If not, why?
  • My accountant is concerned about your income statement and the large amount of revenues from initial fees compared to royalties. For a franchise of your size, he tells me it’s a concern. Applicable to an emerging franchise brand.
  • Is there a franchise advisory council or association? If yes, how does it function? If no, why not?
  • What is the role of technology in the operation of the franchise? Are there any projects under consideration?

If none of these questions are asked, congratulations you have a well functioning franchise program.

 

About the Author: Ed Teixeira
Ed Teixeira is a recognized franchise expert with over 40 years’ experience in the franchise industry. He has served as a corporate executive for franchise firms in the retail, manufacturing, healthcare and technology industries and was a franchisee of a multi-million-dollar home healthcare franchise. Ed and Richard Chan are the authors of a new textbook, Franchising Strategies: The Entrepreneurs Guide to Success, to be published on July 1st by Routledge on July 1st. He has participated in the CEO Magazine Roundtable Meetings with business leaders from around the country and has spoken at a number of venues including the International Franchise Expo and Chinese Franchise Association in Shanghai, China. Over the course of his career, Ed has been involved with over 1,000 franchise locations and launched franchise concepts from existing business models. Ed can be contacted at [email protected]


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