What questions are appropriate to ask other franchisees?
I’m applying to buy a franchise. As part of the application process, I have to visit several current franchisees. It is appropriate to ask them about net margins, gross sales, and daily units sold? I don’t want them to tell me to mind my own business!
In the franchise world, the franchisors—the people who sell the franchises—are not allowed to tell you much about how much money you can expect to make if you sign up. It’s a tricky legal thing, but it has to do with not making overblown promises about potential profits.
That’s why they want YOU to get the financial information directly from people who already own that particular type of franchise. Most of the time, the franchise company will provide you with a list of folks who are willing to discuss the good, the bad, and the ugly aspects of running that franchise.
The people on the list know you need the facts and are usually willing to share some detailed financial information. Make a list of the questions you want answered so you don’t take too much of their time. Speak to as many franchisees as you can, focusing on those who operate stores in areas similar to where you plan to operate. It doesn’t make sense to interview a franchise owner in midtown Manhattan if you plan to open a store in rural Oklahoma.
Be aware that the franchisees may not be totally honest with you. No one wants to admit they made a mistake when buying a small business. They may well inflate their profits and downplay expenses. Ask them to tell you exactly how much money you’ll have to pay in royalties and marketing fees to the parent company. These fees can add up and cut into profits.
Rather than focus on dollars alone, ask them how the franchise company treats them. Some companies are very tough to deal with, taking unfair advantage of their franchisees; while others treat their franchisees like partners and offer enormous support. Be sure all your questions are fully answered before you sign up and write the check.