What to Ask Before You Sign a Franchise Agreement

By the time you are talking with a franchisor about buying a business, you’ve already done the soul searching to determine if you are the right personality to own a business. And if you are that type of person, then you know you are ready to be in charge. Start by taking control of what knowledge you seek during the discovery process. While our years of our experience help to know what questions you might be asking, we encourage every prospective franchisee to ask a lot of questions up front to ensure that this is the right business model and type of business for you for the foreseeable future.

The franchisor wants to make sure this business is the right fit for you and welcomes your queries (or they should). We’ve come up with a few questions that we like to see asked during the discovery process to get you started. These are not all of the questions to be asked, and keep in mind that questions (and answers) are unique to each potential business owner based on their professional background and experience, their geographic region, and their reasons for selecting a franchise business.

1. What ongoing support programs do you offer a franchisee?
Eventually, you leave boot camp but does that mean that the franchisor moves on from supporting you? It shouldn’t! After all, you will continue to pay royalties so what are you getting for them after those first couple of higher need years? It’s a good idea to ask how you will be supported beyond your first year in business. You don’t want them to vanish after signing day.

2. Would you re-enlist?
When you talk to current franchisees ask if they would buy this business again if they had it to do over. Or, if you are talking to a former franchisee, ask them why they left the network. Their answers can reveal whether it was a misfit or if the franchisor did not live up to promises.

3. What’s the process for a disagreement?
Upon reading franchise disclosure documents (FDD), many franchise candidates walk away feeling like they are signing away they rights and that the franchisor carries too much control. There is also a lot of “what if” language describing how conflicts are resolved. First, it’s important to understand this language is intended to protect the brand should an owner be misusing or misrepresenting what the brand stands for. So, remember, the language is designed to protect not only the franchise company but also its franchise operators from those not doing a good job. It’s just as important to discuss the real-life process to help owners get back on track and operating as great franchisees. This is the time discover their procedures for conflict resolution.

4. What is my total investment?
This can be a question to the current or former franchisees and you’ll want to get the nitty-gritty on office space rent, staffing, and more. The franchise fee is just the beginning when investing in a new business. You also want to gain a solid understanding of how much working capital is required to comfortably invest in the business before it becomes profitable. Being overcapitalized rather than undercapitalized can be the difference between businesses that successfully launch and those fail to launch.