18 Questions for Potential Franchisees to Ask Themselves: Part 1
Franchises are among the most profitable business options available, but potential franchisees often have no idea what they should know or ask themselves before they get started in franchising. We've talked to franchisors and franchisees to compile this list (In a two-part series) of the 18 questions you must ask yourself as you explore getting into franchising.
1. Where will the business be LOCATED?
In the city, suburbs, the countryside? This is an important item to consider as some franchise concepts make more sense in dense metropolitan areas whereas others may have a higher likelihood of success in less dense areas where real estate costs aren't as high. In addition, certain franchise concepts only allow midwest franchising, or west coast franchising, so that would be something to explore.
2. Do I want to COMMUTE?
If so, what are the time limits? You shouldn't stretch yourself to the absolute maximum your body can perform, as you will need all the energy you have for running your franchise and making sure it succeeds. If a commute is something you can't stand, don't let it become part of your new life.
3. Do I want a HOME BASED FRANCHISE?
If you feel you work best from the comfort of your own home, it may be easier for you to work with franchise concepts that have a clear system in place to run the business from home. But do your research: home-based franchises may turn out to be a terrible choice for you (read up on how to determine if you're right for a home-based franchise).
4. How many DAYS OF THE WEEK do I want to work?
Six or seven? How many hours per day? Often, different franchisors will require different levels of involvement, so owning a Pinkberry franchise may differ significantly from running a UPS Store franchise.
5. Do I want to be an ABSENTEE FRANCHISE OWNER?
Do you want to really be involved in the growth of your business, or would you rather let someone else manage your franchise? Many franchise concepts require the franchisee to be involved in the day-to-day operations of the franchise, whereas some franchisors allow for passive ownership.
6. Is there a SPECIFIC INDUSTRY I want to work in?
This does not always have to be an industry that you have previous experience in. Many fast food franchises do not want to work with people who have previous experience in the restaurant business because they want to work with people they can train who will work within the existing system. Other industries (for example, some tax preparation franchises) may require previous experience or even a professional certification (e.g., a CPA).
7. Are there any industries, products, or services that I will NOT WORK WITH under any circumstances?
If you have religious or moral restrictions against eating or selling meat, for example, you may want to steer clear of the Arby's franchise opportunity. On the other hand, if you feel hesitation about the franchise you're interested in buying because you're not sure you've got what it takes, it really helps to go visit with and talk to other franchise owners to understand their experiences.
8. Are there ANY SPECIFIC INDUSTRIES that you are most passionate about?
For example, health nuts may have a deep interest in health/wellness franchises or a person that is interested in the environment may be best served pursuing a green franchise. Combining your personal interests with a franchise that matches often goes a long way towards achieving success.
9. Do I want a PRODUCT or SERVICE FRANCHISE?
Is this important to you?
What Happens When a Franchise Contract Ends? Obligations Upon Termination
The franchise agreement should also address who gets to use the franchisee’s phone numbers after the franchise agreement expires. Traditionally, this right has belonged to the franchisor, but with home-based businesses becoming the norm, franchisors that allowed franchisees to use their home phones or existing cell phone numbers might have an issue regaining control of this component of their former franchisees’ business presence.
Before Buying a Franchise Identify Your TRUE Investment
Your approach as a potential franchise buyer is to identify the real investment dollars you’ll need to get the franchise to profitability. The initial source of this information is Item 7 in the FDD. Item 7 is a schedule that details the estimated investment in the franchise. This schedule includes the cost of various items, including: the initial franchise fee, training related expenses, rent, insurance, professional fees for legal and accounting services, supplies, equipment, licenses and permits and additional working capital. Depending upon the specific franchise, there may be added categories. When reviewing the Item 7 schedule it’s important to know that franchisors are not required to list every type of fee or expense that might be part of the investment in the franchise but rather the likely investment needed to start the franchise. As you work to establish your investment number keep in mind the words “estimated” and “typical.” Item 7 is a guide, and as such, you should use this information accordingly.
Before You Can Lead Others...
During my work for the past decade, both running and consulting to companies at every level of the business spectrum, I have noticed a curious and extremely prevalent trend.