The Blog

operational questions

Key Operational Questions to Ask When Buying a Franchise

Operating a franchise unit is a considerable logistical undertaking, and potential franchise owners need to be prepared for a wide variety of different challenges and outcomes that they will likely come across.

Do my operational capabilities match with the requirements of the franchise?

Every franchisee and franchise company is unique. Some people want to own a business that they can operate in a largely hands-off capacity while they tend to their other responsibilities, be they professional or personal. With some franchises this is easy, but there are many others that require more active involvement from the owner in order to be optimally successful.

Before committing so much of your time, money, and energy to operating a franchise, you have to know if it will be possible to achieve your specific goals within the ecosystem of that company.

What will my operating budget most likely look like?

Scrutinizing the books of a franchise unit will usually tell you more about its operational realities than any other activity. Parsing through the budget will show you exactly where, when, and how franchise owners just like yourself are spending money in order to keep things rolling. Before you pull the trigger, ask the franchise representative for concrete examples so that you will have an idea of your expected cost structure, and can prepare for the specific challenges of doing business.

What is the average length of time between signing the agreement and opening a location?

What kind of logistics are involved in opening a unit of this franchise, and how long does the process typically take? Many residential service franchises can be off the ground and running with nothing more than a few branded materials and a single employee. On the other end of the spectrum, some complex retail businesses require hiring a full staff, choosing a site location, construction, training, etc. before they can even open the doors.

What are the most common operational issues that franchise owners face?

Setbacks are going to occur when you operate a franchise; there’s no way around it. The factors that will ultimately influence your success or failure as an owner will be the kinds of issues that plague you most frequently, and how well-equipped you are to respond to them. For instance, if equipment breakdowns frequently require professional service, it will significantly alter how you budget for emergency maintenance.

What is this franchise’s core operating value proposition?

In other words, how does this franchise actually make money? What is the central value that it provides to its customers? Is it convenience, outstanding customer service, or proficiency in a specialized skill? Before opening your business, you have to have a concrete idea of what will keep your customers coming back so that you can emphasize this value throughout your operational strategy.

What do I need to know about human resources management?

If your franchise employs even a single person, employee relations is going to be a significant part of your operations. Human resource management is a vast field filled with many different subject areas, and you can’t possibly be expected to become an expert before you sign your franchise agreement. However, it’s wise to get an idea of the major human resources issues that you will be dealing with, including salary/benefit structure, legal concerns, union membership, and corporate HR assistance.

What’s the day-to-day experience of working in a franchise location like?

If you want the real experience of operating the franchise unit, walk a mile in another owner’s shoes; or at least shadow them for a few days while they complete their tasks. Ask your franchise representative if there are opportunities to observe other franchise owners and managers as they go about their day-to-day responsibilities.

Next Steps

If you’re considering a franchise investment or just have questions, feel free to contact one of our franchise specialists to learn more about the process and all the different franchise opportunities by completing our request form or calling 1-877-650-5551.

legal questions

Key Legal Questions To Ask When Buying A Franchise  

Purchasing a franchise is a legally-binding agreement, and therefore there are numerous legal concerns involved in the process. As part of your cursory research, make sure to ask every franchisor you interview these important legal questions as you consider your options.

Is any legal assistance provided by the franchisor, and in what situations?

In certain instances, some legal matters may be under the umbrella of the franchisor, and they may, therefore, provide legal help relating to arbitration, contract negotiation, or litigation. This sometimes occurs in human resource/Union relations issues, government matters, copyright/trademark issues, etc. it will be helpful to know about these situations when you are budgeting for your legal help so that you can allocate accordingly.

What is the litigation history of the corporate parent?

Learning about the legal history of a company can tell you a great deal about its values and the way it operates. Before entering into any franchise agreement, carefully scrutinize the legal history of the company in question. What kinds of suits have been brought against the company? Do they have a strategy or threshold for settlements? Are there any patterns that can be identified by the way legal complaints are brought forth and handled?

Is the corporate organization currently involved in any pending lawsuits?

Understanding past legal issues is very helpful, but it’s also important not to overlook the present ad future. As a corollary to the previous question, it’s also crucial to ask whether or not the company is currently involved in any legal disputes that could affect its future.

What is the process for handling disputes between the franchisee and franchisor?

Everyone wants to be optimistic and believe that their relationship with their franchisor will always go smoothly, but disputes are an inherent part of business relationships. The important thing is how disputes are resolved, which is why you must ask your potential franchise company to outline their specific processes for dispute resolution.

Do you assist in negotiating leases?

Certain types of service franchises don’t even need a physical space to operate, while real estate for a storefront is often the primary concern and expense for retail franchises: such is the diverse nature of the franchising world. If your company is going to need to rent a physical space, then you will want to know what the process is with regards to the franchisor. Are you expected to hire your own real estate attorney to review contracts and leases, or is in-house assistance provided by the company?

What will happen to my business if the franchisor declares bankruptcy?

Bankruptcy hearings bring a multitude of uncertainties, so it’s best to have some idea of what will occur in the unfortunate case that it ever comes up. Keep in mind that bankruptcy laws are dependent upon the type of bankruptcy that is being filed, and they also vary depending upon the state.

What is the process for altering contracts?

Contracts are obviously executed in order to answer potential legal questions, but that doesn’t mean there aren’t times when they need to be changed. Does the franchisor have the right to make changes to agreements without your consent? Are you able to sell your stake in the franchise at any time, and is there a fee involved? If you co-own the franchise, what are the legal requirements and procedures for dissolving a partnership?

Are you aware of any legal and regulatory issues unique to my area?

The laws that govern commerce can be vastly different depending upon what state your franchise business is operating in. Certain industries are much more tightly regulated in specific states, and penalties may apply if guidelines are not followed to the letter. To give an example, certain states require franchise restaurants to disclose calorie counts if the company operates a minimum number of units in the area.

Next Steps

If you’re considering a franchise investment or just have questions, feel free to contact one of our franchise specialists to learn more about the process and all the different franchise opportunities by completing our request form or calling 1-877-650-5551.

financial questions

Key Financial Questions to Ask When Buying a Franchise

As you begin the process of researching potential franchises to buy, hundreds of questions are likely to be circulating in your head, many of them related to money. Here are several financial queries that you must absolutely ask before buying a franchise.

What’s the total investment I will be expected to make?

This is the question that really needs to be at the top of your list because it will immediately help you narrow down your list of franchises that are feasible options for you. Because you expect that your investment will eventually reap rewards, you may be tempted to justify expanding your budget to accommodate more expensive franchises than you had previously considered: don’t. Treat this experience like shopping for a house or a car. Set a maximum limit, and eliminate franchises that require you to make an investment that is beyond that amount.

How much cash is required?

It’s vital to know how much in liquid assets will be required by the franchisor early in the process because the answer can vary so significantly. In fact, the percentage of your investment that you must have in cash can range anywhere from 0% to 100%, depending on the franchise in question.

What do I receive for these costs?

You’re spending a significant amount of money to invest with the franchisor, so you deserve to know exactly what that money will yield you even before your company begins to earn revenue. For instance, does the franchise fee cover an on-site training period at the company headquarters? Are certain essential materials and equipment included in the start-up costs?

How are your royalty fees structured?

Royalty payments are something that almost every franchisee will have to deal with, but the types and structure can vary greatly from company to company. Some franchise companies levy an all-inclusive franchise royalty fee, while others split them up into different percentages to fund departments such as marketing, advertising, etc. Additionally, you will want to know how often each fee is assessed, and whether it is a fixed payment, percentage of sales, or another amount.

Are there any discounts or promotions available?

Many franchise companies, especially if they are part of larger networks, will offer specific discounts in order to attract potential franchisees. These may include discounts for qualified veterans, minorities, first-time franchisees, or those who are looking to open in a specific region.

Do you offer any assistance with financing?

Some franchisors may be able to work with preferred lenders to help you secure financing, while others will require you to navigate the process on your own.

When can I expect to reach my initial goals?

First, you need to decide on an initial goal. Whether it’s for the company to break even, reach a specific benchmark for growth, or hit a certain revenue target will depend on your specific type of business and situation. Then you need to ask the parent company how long it will likely take you to reach that goal, using specific examples provided by other units in the system.

How financially healthy is the parent company?

Many potential franchisees are concerned about the expected revenues and costs for their own location, but they forget to scrutinize the financial health of the corporate organization. Your franchisor is going to be your partner in this endeavor, so make sure they are financially stable enough to offer consistent support.

What are the lowest- and highest-performing franchises in operation?

Knowing this will help you get an idea of the best- and worst-case scenarios for owning this franchise. It will be even more informative if you can also see the low- and high-water financial results for the franchise units that closely resemble your target market.

Next Steps

If you’re considering a franchise investment or just have questions, feel free to contact one of our franchise specialists to learn more about the process and all the different franchise opportunities by completing our request form or calling 1-877-650-5551.