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Get To Know the Franchisor Before You Buy the Franchise

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When buying a franchise, it’s important to evaluate the franchisor. This article will present tips on getting to know the franchisor before you sign the franchise agreement.

Purchasing a franchise is just the beginning of what should be a long term relationship. In many cases a new franchisee is looking at a franchise term of ten years, with an option for another five years. During this period of time both the franchisor and its franchisees will face several unexpected challenges. Some may arise during the normal course of business while other challenges may suddenly crop up. The recession of 2009 is an example of an event that came quickly and with devastating results.

On an individual basis, franchisees can face problems on a business and personal level. Quite often this will lead the franchisee to seek some form of assistance or support from their franchisor.

Because a franchisee must operate the franchise according to the terms of a franchise agreement, which will favor the franchisor, it’s important to gain a good sense of understanding regarding how the franchisor administers the franchise on a day to day basis. You should develop a profile of the franchisor in order to get to know them.

Here are some indicators that can help you develop a franchisor profile, based upon your interaction with the franchisor and its franchisees.

The Franchise Sales Process

The way a franchisor handles the sale of new franchises can reveal quite a bit about the franchisor. Using franchise brokers versus in house sales staff may indicate that the franchisor is looking for fast growth or may lack the capital to fund its own sales staff. Another important factor: Was your request for franchise information processed on a timely basis?

  • Did you receive an e-mail acknowledging your interest in the franchise?
  • Do your e-mails or calls to the franchisor sales staff generate a prompt response?

Poor performance by the franchisor in this fundamental area can mean that they are understaffed, overwhelmed with requests or not as responsive as they should be. You’ll need to keep these things in mind at the start of your inquiry into a specific franchise opportunity.

Discovery Day

A key step in the franchising process is to meet with the franchisor during their discovery day.Some franchisors try to schedule the corporate visit at an early stage in the franchising process. Typically, this occurs after the franchise application has been submitted and approved. This is the time when a franchisor will evaluate a franchise candidate and try to close the sale. Although your focus will be to gain added knowledge regarding the franchise, ask questions and perhaps negotiate terms of your franchise agreement, this is also an opportunity to gain further insight into the franchisor.

  •  Did you receive an agenda prior to the meeting?
  •  Did the key members of the franchisor staff participate?
  •  How helpful was the franchisor regarding your travel and lodging requirements?
  •  Were you able to meet a key member of senior management?
  •  How responsive was the franchisor to your questions or requests?
  •  If the franchisor staff is aggressively trying to sell the franchise it can be a “red flag.” Typically, a solid well managed franchise company won’t take this approach.

Overall, your objective during discovery day is to carefully observe and make mental notes regarding the franchisor staff. This should be another component of your franchisor profile.

Franchisee Feedback

  • Your most credible source of information about the franchisor will come from existing franchisees. During your conversations with existing franchisees it’s not unusual to focus most of your time upon the operational aspect of the franchise. However, it’s also important to use this opportunity to learn about the franchisor. Here are some questions that will help you put the finishing touches on your franchisor profile.
  •  Has the franchisor delivered as promised?
  •  If no, what happened?
  •  Have you had a need to seek assistance from the franchisor and if yes how did they respond?
  •  Do the franchisor staff and senior management respond promptly to e-mails and phone calls?

Purchasing a franchise is an important and potential life changing decision. Since the franchisor is the critical part of the franchise relationship it’s important to gain as much knowledge about the franchisor as possible. You’ll be engaging in an imperfect science, however, it’s important for you to “know the franchisor” before signing on the dotted line.

2015 FranchiseKnowHow, LLC

Ed Teixeira is the President of FranchiseKnowHow.com and Chief Operating Officer, FranchiseGrade.com. He is a former franchise executive and franchisee. He can be contacted at 631-246-5782 or at  franchiseknowhow@gmail.com

 

 
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