20 questions to ask a franchisor
Before investing in a franchise, you should be satisfied it is the right one for you. Cathryn Hayes, Head of Franchising at HSBC, lists some of the questions you should ask before making one of the most important decisions in your life.
Franchising is often a safer option than going into business on your own. A franchise owner will have a tried and tested format to follow, training and support from their franchisor, and a network of fellow franchise owners to speak to. So although franchise owners operate their own business, they will not be doing so alone.
All this support means that banks are much happier to lend to a new franchise owner.
When you invest in a franchise, you are entering into a long-term business relationship with the franchisor.
It is extremely important, therefore, that you check their background and business performance.
However enthusiastic you are, don’t rush and be wary of franchisor pressure to sign up, particularly if they present you with the ‘if you don’t sign now, you won’t get another opportunity’ approach.
- How long has the franchisor been in franchising?
- What are the backgrounds of the Directors?
- How much expertise/experience do the directors have in the business they are franchising?
- Is this business financially sound? Ask for three years’ audited accounts and current management accounts if possible. Ask your accountant to look at them.
- Is the franchisor a member of the British Franchise Association?
- Have any franchise owners failed?
- If the franchise is new to the market, what pilot scheme did the franchisor operate?
- What initial and ongoing training is offered?
- How much support is given in choosing and fitting out premises?
- Is there a market for the franchise’s goods or services, what market research has been carried out?
- How much does the franchise cost and what does the price include?
- How much will you have to pay on an ongoing basis?
- Have you seen any actual trading figures from existing franchise owners that show whether the financial projections are realistic?
- Who are the main competitors and how do they compare in terms of price, quality, delivery and service?
- Is there a long-term market for your goods or services, or is the franchise operating in a market subject to changes in fashion or is it seasonal?
- Is there a set territory and is it postcode or geographically based?
- How long is the term of the legal contract – can you renew it?
- Do you have to achieve minimum levels of turnover, or buy minimum amounts of stock?
- What will happen if you don’t achieve this?
- Can you sell the business in due course?
It is vital that you research thoroughly before buying a franchise – HSBC’s free Starting a Franchise guide, available from the website below, will help you ask all the right questions.