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8 Questions to Ask a Franchisor When Conducting Due Diligence

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Between showing your interest in a franchise opportunity and signing the franchise agreement, you will conduct thorough research on the franchise opportunity. This research forms your due diligence, which involves scrutinising the franchise opportunity to decide whether it is right for you. It includes tasks such as your own, independent research and consulting independent professionals. Your research should also involve speaking to existing franchisees and the franchisor. There are several crucial questions you should ask the franchisor at this stage. Their answers to these questions can help you assess the opportunity’s viability. This article will explain questions prospective franchisees should ask the franchisor when conducting due diligence. 

1. Can You Provide an Overview of the Franchise Business Model? 

The franchisor should already have provided you with the franchise operations manual. This should detail their business model. Clarifying this with the franchisor before you sign the franchise agreement is essential. 

It can be vital to hear precisely how the business model works from the franchisor. The franchisor should be able to outline the unique selling points of the business concept and its competitive advantages. 

2. Can You Outline the Total Investment Required to Establish and Operate the Franchise Location? 

The franchisor should have outlined details of the financial structure within the franchise agreement and operations manual. They should be able to give you further insights into this and any additional expenses you may need to pay. You need to understand the total investment amount because if you want to join this franchise, you must have access to the necessary capital. 

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3. What is the Track Record of Financial Performance in this Franchise Business?

Asking about the franchise business’ financial position and history should help you better understand the viability of the franchise opportunity. The franchisor should be able to provide you with detailed information and projections. 

4. What Training and Support Will I Receive? 

The franchisor will have already provided you with information about the training program and support mechanisms, but you can also ask them about this. If you need further training or assistance, ask the franchisor for it. 

5. Can You Provide Testimonials From Existing Franchisees Within Your Network? 

Existing franchisee testimonials can help you better understand the potential performance and viability of the opportunity. Speaking to existing franchisees in person is also a valuable idea. You can then gauge how they feel about being part of the network. You might also talk to former franchisees or ask the franchisor whether any franchise locations have been unsuccessful and why that happened. 

6. What Marketing and Advertising Support Do You Provide? 

The franchisor should support you in carrying out effective local marketing. At this stage, you should ensure that they support their franchisees in attracting customers and growing awareness of the brand. 

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7. How Do You Stay Updated on Industry Trends? 

The franchisor is responsible for adapting their franchise model based on industry trends. The measures they take should help ensure their concept’s long-term viability and relevance. 

A good franchisor will: 

  • frequently conduct thorough market research; 
  • keep an eye on competitors; and
  • be receptive to their franchisees’ feedback. 

8. What Are Your Future Plans for Your Franchise Network? 

You can ask franchisors about their future business plans and how they support franchisees in opening additional locations or scaling their operations. These questions should help you understand their growth plans and show the franchisor you are interested in their bigger picture. 

Key Takeaways

You should ask the franchisor several critical questions before signing the franchise agreement. The franchisor will already have covered some topics in the agreement and operations manual, but asking these questions will help you gain further clarity about the opportunity. These questions cover various aspects of the opportunity, including:

  • the franchise concept; 
  • your financial investment; 
  • previous financial performance; 
  • training and support provisions; 
  • existing franchisee’s experiences; 
  • marketing and advertising support provisions; 
  • how the franchisor maintains their network’s competitive edge; and
  • their plans for the network. 

Speaking to the franchisor can also help establish whether you could share a long-term working relationship with them. If you are compatible with them and their management style, you are more likely to have a successful franchise. 

You should supplement the franchisor’s answers to your questions with your independent research. This way, you can make an informed decision based on your unbiased assessment of the opportunity. Your independent research should include the following: 

  • researching the franchisor’s background; 
  • researching the history of the franchised brand; 
  • consulting with independent professionals such as lawyers and accountants; and
  • meeting with existing franchisees within the network. 

If you require legal advice about a franchise opportunity, our experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page

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Jessica Drew

Jessica Drew

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