Evaluating a Franchise Qs You Must Ask

Evaluating a Franchise

Evaluating a Franchise is important. Before you finally sign up for a franchise ask your franchisor these pertinent questions.

o  Who owns the trademarks, service marks, etc., and are they federally registered?

o  Are there any disputes pending or threatened against the trademarks?

o  Are any senior management or key personnel leaving the system?

o  Does this company compete with the franchisees in the marketplace?

o  Will the franchisor finance any of the costs?

o  Is the franchisor willing to negotiate the terms of the franchise?

o  Does the franchisor staff attend seminars on franchising and management?

o  Do field consultants offer help and guidance or merely act in a regulatory role?

o  How many franchises are expected to be added each year?

o  Where will they be located?

o  What is the success rate of existing franchises?

o  What method is used to protect franchisees from poorly performing franchises?

o  Is there a franchise owners association?

o  Is there a franchise advisory council?

About costs:

o  What is the total investment required to own a franchise?

Franchise fee

Furniture, fixtures and equipment

Leasehold improvements

Lease deposits

Other deposits

Franchise training

Travel expenses

Supplies

Advertising and brochures

Grand-opening advertising

Inventory

Pre-opening staff costs

Working capital until breakeven

Working capital living expenses

Other

o  What are the recurring financial costs, the basis used for calculation, method of payment and frequency of payment:

Royalties

Advertising

Must the franchisee purchase products or services from the franchisor:

o  Does the franchisor earn income on purchases?

o  How much does the franchisor earn?

o  How are the products distributed?

o  How long does it take for the orders to be filled?

o  What other initial or continuing services does the franchisor provide? What do these cost?

About consumer research and marketing:

o  What type of consumer research has the company conducted?

o  What were the results?

o  Has the franchisor conducted any market studies on the territory to ensure that it can support a franchise?

o  What are the demographics required to support a franchise?

o  What are the traffic counts required to support a franchise?

About training:

o  What are the location, duration and additional costs of initial training?

o  Who must attend the training?

o  What is the cost of additional staff attending training?

o  What is the training curriculum?

o  Who conducts the training and what are their backgrounds?

o  Who pays for transportation, room and living expenses?

o  Doesthefranchisorprovidetrainingmaterialsfortrainingnewstaffinaddition to the operations manuals?

o  Does the franchisor provide hands-on assistance during the pre-opening, grand opening and initial period? Of what type, duration and cost?

About products and services:

o  Are there any new products or services under consideration for addition to the franchise?

o  When are they going to be introduced?

o  What is the estimated additional cost for adding the new products or services?

o  Are there any restrictions on the distribution or sale of the product?

o  Is there a guarantee or warranty program? How is it administered and what is the cost?

o  Is there a minimum that must be purchased?

About advertising and marketing:

o  What type of consumer advertising does the company recommend?

o  What types of cooperative advertising programs are being used?

o  What percentage of sales is recommended or required for advertising or marketing?

o  How do the franchisees obtain their sales leads or customers?

o  What is the franchisor’s national/regional advertising program and budget?

o  What portion of the national/regional advertising contribution is used for administrative/corporate/agency expenses and fees?

o  What are the primary advertising/marketing vehicles?

o  What is the grand opening advertising program and cost? 

About operations:

o  What are the roles and responsibilities of the field staff?

o  How many locations does each franchise consultant work?

o  What is the background of the franchise consultant I will be working with? Can I meet that person before purchasing the franchise?

o  How often does the field staff visit a franchisee’s location?

o  What is the additional cost of field services if the franchisee requires it?

o  Exactly what kind of assistance is given?

o  What kind of supervision or quality control is there?

o  What, if any, is the charge for assistance?

o  What kind of business management systems are provided to boost sales and profits?

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