50 questions to ask franchisees before you buy

Item 20 of every Franchise Disclosure Document lists current franchisees and those who left the system in the last fiscal year, with contact details. Those names are your validation list. Owners have no obligation to talk to you, but most will give you twenty minutes if you are respectful and prepared.

How to run validation calls

• Call at least ten owners, mixing tenure (first-year, three-to-five-year, veteran), region and performance. Don't rely only on the names the franchisor suggests.
• Include former franchisees. People who left can describe problems current owners may not mention.
• Start easy, end with money. Rapport first; financial questions land better ten minutes in.
• Write everything down and look for patterns, not single stories. One unhappy owner is an anecdote; five with the same complaint is data.
• Bring numbers back to your plan. Update the inputs in the break-even calculator with what you hear.

Getting started

1. Why did you choose this franchise over the others you looked at?
2. What did you do before, and how much did that background help?
3. How long did it take from signing to opening?
4. What surprised you most during the first six months?
5. How good was the initial training, and what was missing?
6. How much help did you get with site selection and lease negotiation?

Money

7. What was your total investment compared with the Item 7 estimate?
8. Which costs ran higher than expected?
9. How much working capital did you actually need before the business covered its costs?
10. How long did it take to break even? To pay yourself a salary?
11. Roughly where does your unit sit relative to the Item 19 figures?
12. What margin do you run at after royalties and fees?
13. Are the required suppliers competitively priced?
14. Have fees increased since you signed? Were new fees added?
15. How did you finance the business, and how did the lender view the brand?

Operations and people

16. How many hours a week do you work now? In year one?
17. What does a typical day look like?
18. How hard is it to hire and keep staff?
19. What do you pay, and how does that compare with local competitors?
20. Could this business run with a manager while you work part-time?
21. How good is the point-of-sale and back-office technology?
22. What breaks most often — equipment, software, supply chain?

Franchisor support

23. Who supports you day to day, and how quickly do they respond?
24. How often does a field consultant visit or call, and are they useful?
25. Has the franchisor listened when franchisees raised concerns?
26. Is there an independent franchisee association or advisory council?
27. How has leadership changed in the last few years, and did it matter?
28. What is the best thing the franchisor does? The worst?

Marketing and customers

29. Where do most of your customers come from?
30. Do you see results from the national ad fund?
31. How much do you spend on local marketing each month?
32. Who are your main competitors locally, and how do you win?
33. How much of your revenue is repeat or recurring?
34. How seasonal is the business?

Territory and growth

35. Is your territory big enough? Has anyone encroached on it?
36. Does the franchisor sell online or through other channels into your area?
37. Have you opened or considered opening more units? Why or why not?
38. How easy is it to sell a unit, and what do units sell for?

The relationship

39. Have you had disputes with the franchisor? How were they resolved?
40. Do you feel free to talk openly with me?
41. What do franchisees complain about most when they get together?
42. Has the franchisor ever enforced rules unfairly?
43. What do you know now that you wish you had known before signing?
44. Knowing everything you know, would you buy this franchise again?
45. Would you recommend it to a family member?
46. Is there anything I haven't asked that I should?

For former franchisees

47. Why did you leave the system — sale, closure, termination or non-renewal?
48. Did you recover your investment?
49. What could the franchisor have done to change the outcome?
50. Would you buy any franchise again?

Reading the answers

A healthy system gives you consistent answers about investment, ramp-up time and support, even from owners who are not thrilled. Be cautious when owners refuse to discuss numbers in a system with no Item 19, when several mention fee increases or new mandatory spending, or when recent leavers describe the same problem. If what you hear contradicts what the sales team told you, ask the franchisor to explain in writing.