How much does it cost?
Arguably one of the most important questions franchise candidates ask when starting a franchise is the cost to open their location and where those funds are applied to throughout the process. A reputable franchisor should be able to articulate the required startup costs (typically as a range). Most franchisors even have their costs listed on their website.
Is franchisor financing available?
This is not very common (only 12%), but some franchisors do offer in-house financing. However, if the franchise you’re looking to invest in doesn’t offer franchisor financing, they may be able to direct you to resources or lending partners. Many franchisors establish relationships with lenders to ensure their franchisees get the money they need to start their business with a fair interest rate.
How much can I make?
A franchisor cannot guarantee franchisee revenue. However, many franchisors list an earnings claim in Item 19 of their FDD. This section is optional, and some franchisors may choose to leave out any financial performance representations. This doesn’t necessarily mean the company isn’t in good health, but the lack of information can be considered a red flag to potential investors.
How are territories determined?
A large concern for those looking to invest in a franchise is the risk of cannibalization. If you’re promised a “protected” or “exclusive” territory, you’ll want to familiarize yourself with the terms of the agreement and understand what the franchisor can or cannot do in regard to your location/area.
How is the company's financial health?
Item 21 in the FDD will have information regarding the company’s financial situation. A franchise representative should be able to walk you through the company’s previous growth and what their plans are for the future. You’ll want to understand how the franchisor is making their money. If most of their income is coming from sales instead of royalties, it could be a sign of an unhealthy franchise, or a very new one.
What kind of support will I receive?
All franchisors provide support to their franchisees. That’s a huge part of what you’re paying for when starting a franchise. You’ll want to get a clear picture of the support you’ll receive once you’ve opened your doors. What kind of on-going training is provided to you and your staff? Who can you call should you run into an issue? How often can you expect to receive on-site visits? You’ll want to ensure that you’re comfortable with the level of support you’ll be getting once you sign the franchise agreement.
How do you stand out against competitors?
This is very important. Like that of a job search, franchisors know you’re not just looking at their opportunity. They should be able to articulate what makes them better than their competitors in the space or industry. Ask them about their competitive advantages and unique selling points.
What do I look for in a franchisee?
In addition to financial requirements, franchisors may have personality traits or qualifications they look for in franchise candidates. Understanding who they look for will help you determine if you’re the right fit for their franchise opportunity.
What is your franchisee success rate?
Pro-tip: the number of franchise locations only determines the size, not success, of a franchise. A system could very easily have many locations with a low success rate. This could be due to the franchisor being stretched too thin and therefore unable to provide adequate support to the franchisees. On the other end of the spectrum, if a franchise is small with a low success rate, it could indicate they don’t have enough resources.
Can I speak with existing franchisees?
Also known as “Validation,” franchisors should have a list of franchisees in the FDD that you can contact to ask them direct questions about their experience with the brand. You’ll want to speak to more than one franchisee, and you’ll want to ask them all the same questions. This way you’ll be able to better compare answers. Inquire about the process of starting a franchise with the brand and what their day-to-day activities look like now.
Can I see your litigation history?
Item 3 of the FDD will outline any legal action involving the franchisor. Unless the company is still young, a short history of disputes is always good to see. A long rap sheet of legal disagreements should raise concern for potential candidates. Should the franchisor have a few disputes listed in Item 3, it’s best to ask how they resolve these types of situations.
What are the terms of my agreement?
While neither you nor the franchisor hopes this is the case, sometimes franchising doesn’t pan out for everyone. Get a clear understanding of the terms in your agreement and what the process is should you want to sell your location and move on after your agreement expires.
On the flip side, if you find great success in your franchise location, you may want to renew your agreement with the brand. Ask now when starting your franchise if renewal is possible down the road.
Scramblers: Crack open the answers to your questions!
We aren’t yolking, at Scramblers, we’re happy to answer all inquiries you may have during the franchise discovery process. Transparency is key when establishing healthy relationships with our franchisees. We encourage questions, and after 30 years in the business, there aren’t any we can’t answer.
When starting a franchise like Scramblers, you become part of a family and we provide on-going support to our family to ensure their success. Our digital “university” allows every member of your staff to learn their role before starting in your restaurant. We also have our custom built “coop” system – this has everything you need from hiring to daily business operations, all conveniently stored in one place. We’ve mastered the brunch concept, and with our tools and business model, you can, too.
You’ve got questions about franchising, we’ve got answers. We’re very egg-cited to hear from you. Get started today!