If you’re not talking to franchisees in the network of the business you want to buy, you’re missing a beat. Franchisees offer a different perspective to the franchise relationship. It’s important to remember that they were once exactly where you are now. So, find out why they decided on the business they purchased. This may help you get a real perspective of what the business is about.
There really is no substitute for due diligence when buying a franchise. The most crucial step in doing this research is speaking to existing franchisees.
My advice would be to structure a set list of questions that you plan to ask each franchisee and do this with as many franchisees as possible within the network.
It is important to ensure that you keep these questions consistent as this will paint a much clearer picture of the strength and culture of the franchise business you are considering becoming a part of. You can then better decide if it’s a good fit for you or if you should run in the opposite direction.
Many people I’ve interviewed over the years tell me that they chose the franchise they bought as they were already customers of the brand, they had visited the business on several occasions, enjoyed the experience and loved their products.
But that is the total extent of the research they did into the company in which they’ve invested all their future in and often put up most if not all their assets to fund their venture. It’s a gamble that may pay off but it could also go very wrong too.
I often say to franchise candidates that speaking to existing franchisees in the network you are interested in is like speaking to the future you and by asking the same questions across a sample set of franchisees you will start to determine reasonably quickly if that sounds like the future you want too.
There are many ways to obtain the contact details of existing franchisees: firstly it is a mandatory obligation under the Franchising Code to provide applicants a disclosure document at some point during the recruitment process of the franchisee.
This document will contain the store locations, details on when the franchise started trading, contact details for existing franchisees and may also contain contact details for former franchisees. These may have sold the business, failed or been terminated as franchisees but in many cases are worth speaking too as they may help give you a different perspective of the business and what could go wrong.
However, be aware that franchisors tend to spin closures as the fault of lazy franchisees who didn’t follow their system, and while this could be true, it may also indicate a system that has very poor franchisee recruitment and selection. So if you see a high percentage of closures, that’s a big red flag and you should tread with caution.
You should also be cautious of a franchisor or recruiter that limits and controls which franchisees you should speak to as they may be trying to prevent you finding out that they have many disgruntled franchisees in the network. So, make a random selection of people to speak too and importantly, look for franchisees that are both new and established in the system.
10 questions to ask
To assist you in this process, here is an example of the type of questions you should ask an existing franchisee:
1. How effective was the franchisor’s training?
2. Was the initial training you received sufficient?
3. Do you still receive additional training on an ongoing basis by the franchisor? Is this training included in the franchisor’s royalty fee or at an additional cost to the franchisee?
4. How many hours a week do you spend working on the business?
5. Were there any hidden fees or unexpected costs?
6. What do you think of the marketing and advertising? Does the franchisor advertise as much as you were promised it would? Do you have a say in what your advertising contribution is spent on, especially in your local area?
7. What kind of support do you receive now? When you have a problem, is your franchisor responsive or do you feel like you’re on your own?
8. Did your franchisor accurately estimate the start-up and operating cash you needed?
9. Approximately how much are you earning? Is it what you expected?
It is usually best to save the money questions towards the end of your questioning as most people are reluctant to discuss their personal finances with someone they don’t know. You’ll find that franchisees are more willing to cover this subject once you’ve established some rapport with them.
However, if a franchisee is unwilling to answer this question then be respectful of their privacy and move on.
10. Finally, probably the most telling of all is this final question that I always recommend finishing on. If you had it to do all over again, would you choose the same business and franchisor?
No matter what the answer is, explore it. Your response should always be “Why?” The most common answer is a pause followed by a yes. This usually means that there are valid arguments for answering yes or no, but pride of ownership usually tips the balance toward the positive answer.
Ask for the strongest argument they can think of for answering yes or no. The contrast can be very informative, especially if you can read between the lines.
How to process the information
Another benefit of these calls is that you will likely find your interest in the franchise quickly increasing or waning after speaking to a few franchisees. Waning interest is a red flag telling you that this probably isn’t the right business for you. If you find your interest rapidly increasing, it is a very positive sign.
Even if you can’t really put your finger on why either of these reactions is happening, trust your gut. Your instincts have a way of making you feel right or wrong about a decision like this and they are usually correct.