40 questions to ask before entering a franchise agreement

FAQs: February 11, 2020

The 40 questions you need to ask before entering a franchise

Looking at becoming a franchisee? Buying a franchise is a significant investment and it’s crucial to do your research and due diligence before jumping in. There are many (many) questions to ask yourself and potential franchisors before entering into a formal agreement. 

Starting a business is not for the faint of heart; it involves time, dedication and a large investment of capital. Making a wise decision on where to spend your time and money takes asking the right questions and seriously evaluating which opportunity is best for you. 

Whether you’re figuring out what questions to ask before entering an existing franchise business, or how to tackle your first franchise meeting, we have you covered with 40 must-ask questions before you sign on the line. 

Questions to ask other franchisees

Check with those in the know

Talk to other franchisees about their experience with the brand and make sure what you think owning a franchise would be like is how it actually goes in reality. 

Questions to ask

  • What’s your relationship with your franchisor like?
  • Are you happy that you decided to become a franchisee?
  • How well-developed is the network of franchise owners that support one another?
  • Can you change your mind after signing or paying money under the agreement? Is there a cooling-off period?
  • If you had to start it all over again, would you change anything?

Questions to ask the franchisor when evaluating a franchise opportunity

Corporate strategy and day-to-day running of the business

The franchisor should be able to share with you the brand’s strategic plans. For Quick Service Restaurant franchises, like Chicken Treat, this should also include menu development, marketing activities and investments in technology. 

They should be able to give you a ‘day in the life’ snapshot of your role as an owner/operator of the business. Their answer should cover: 

  • pre-opening hours
  • team meetings
  • staff training
  • point of sale
  • systems and processes
  • closing
  • staff rostered hours
  • number of managers
  • typical hourly rate per store
  • expected electricity costs

Questions to ask

  • What’s the current corporate strategy?
  • What are the corporate goals for the brand in the next one, three and five years?
  • Can you tell me about the day-to-day store operating procedures that come with running one of your franchises?
  • What’s a typical day like for your franchisees?
  • Can you give me some examples of success stories?
  • What are some of the more challenging moments for your franchise owners?
  • How much hard work, time, and energy will be required to make the business a success?

Head office support

A professional franchisor will be as invested in the success of your business as you are and should provide strong head office support to help you succeed.

At Chicken Treat for example, we help franchisee’s select a location, negotiate leases and manage the build of each restaurant. And we have a tight-knit team you can access during business hours for any support you may need.

We offer a 10-week comprehensive training program to new franchisees. So, if you’ve never run a business before we’ll take you through everything you need to know to hit the ground running, including creating your own comprehensive franchise business plan

When new products or services are released we offer training along with regular conference calls to keep franchise owners informed of what’s happening with the franchise. Face-to-face meetings and annual conventions? You betcha. These feature breakout sessions covering best practices, annual reviews and introductions of new opportunities to help the business grow.

Questions to ask

  • What does head office support look like?
  • What support is provided to choose a location, negotiate leases or manage the build of my franchise store?
  • What are the ongoing support arrangements to help me run my franchise restaurant?
  • What training is offered when I enter a franchise agreement?
  • What does ongoing training involve? 

Tech support and marketing

During the life of your franchise agreement, a franchisor might also decide to update computer systems, introduce new uniforms or change the appearance of the franchise system. These might not have been thought about when you entered the agreement and the costs for rolling out the changes are normally paid by the franchisee under an addition to your franchise agreement.

Understanding whether the franchisor’s tech and marketing are up to date and future proof could be an important factor in your decision making. 

Questions to ask

  • How powerful is the company’s website?
  • Has the company developed apps for devices that allow owners to book appointments or purchase goods and services? 
  • How strong is the brands’ social media presence, not just on Facebook but on Twitter, Instagram, LinkedIn and YouTube?
  • How up-to-date is the point of sale system?
  • What about the intranet or business hub?
  • Do you have a support team dedicated to tech?
  • How much care and attention is paid to the logo?
  • Does the franchise contract with marketing firms to aid in brand development?
  • Does the company offer stock photos or video to use for marketing?
  • What about crafted print ads, radio scripts or television commercials?
  • How often and how effective are the promotional efforts?
  • Have you established relationships with any powerful philanthropies to support community initiatives?
  • Do you have a social media marketing team?
  • Do you have a national marketing plan?

Fees

The franchisor needs to show you exactly what you need to pay upfront and ongoing. They should be able to break this down into the key expense areas and detail precisely where your money is going. 

Potential Chicken Treat franchisees always ask about the financials, so we start by detailing the costs of buying a new or existing site. 

The typical Chicken Treat franchise startup fees are between $350,000 – $700,000 plus GST. 

  • Shopfront start-up costs are typically lower than drive thru start-ups with an approximate fit-out cost of $350,000 – $500,000 plus GST
  • Drive thru start-up costs come in at approximately $600,000 – $700,000 plus GST.

Questions to ask

  • What are the fees for starting a franchise?
  • What are the upfront fees and what are ongoing fees?
  • Can you give me a detailed breakdown of expense areas and show me exactly what my fees are paying for?

Return on investment (ROI)

According to the Franchising Code of Conduct, your franchisor isn’t allowed to disclose ROI information to you as it would influence without evidence. Simply put, past performance isn’t an indicator of future performance.

However, an existing business can give you access to their profit and loss statements. From there you should check if that store is within ROI benchmarks set by the franchisor. 

The franchisor should allow you to look at:

  • the sales history
  • employee wage %
  • any costs in line with benchmarks.

If you’re looking at setting up a new store, you’ll need to put in your due diligence to gather information about demographics, traffic count, competitors in the area and likely sales profile. From there you can work out benchmark costs and profit levels. Comparing the benchmark costs and profit levels with the required investment may give you an indication of ROI.

Questions to ask

  • Can you show me the last financial years’ profit and loss statement for the franchise site I’m interested in?
  • Can you provide access to the franchise business’ sales history, employee wage % and any costs in line with benchmarks?
  • Do you have any information about demographics, traffic count, competitors etc. in the area where I’d like to open a new store?

Renewal options 

Even if things are going well, you may not have an automatic right to renew your franchise agreement once the initial term is over. Asking questions about what happens at the end of the agreement is advised.

Your franchisor should be able to provide you with documentation that outlines answers to each of these questions. Most of these are covered in the franchise agreement. You should have 14 days to read your agreement and get legal counsel.

Questions to ask

  • What are my rights and responsibilities around renewing our franchise agreement? 
  • What are the rules about selling my business?
  • Are there any restrictions on starting a similar business if I want to? 

Questions to ask the Chicken Treat franchise team

Asking the right questions and doing your diligence helps you work out whether a franchise opportunity is right for you. Leisha, our Franchising Manager for Chicken Treat, is on hand to answer all of these 40 questions and more. 

Get in touch today!

Leisha Fontana – Leisha.Fontana@craveablebrands.com – 0408927750