Getting a Franchise Is Like Courting – How Early Can You Bring up the Subject of Money?
This is the second in a two-part series on selecting a franchisor. The first article looks at what you should be asking yourself so as to find a franchise that matches your personality and goals. This second article looks at what you should be asking the franchisor to make a final decision.
Getting a franchise is like courting. For you, that requires dressing up, being genuine and conversational on the first date. And like courting it might be best to initially get to know each other before rushing into the one thing you are really interested in – money.
You will have already gone online and filled out the initial franchise application form and cleared that first hurdle. Now you’re called in by the franchisor for an initial interview and/or discussion, where the communication goes from one-way emails to a two-way conversation in the form of a question-and-answer session. As in any first meeting, both sides are trying to gauge, beyond the initial paperwork, that potential exists for a long-term mutually satisfying and profitable partnership.
You should be primed as to what the franchisor is likely going to ask you and have your answers well-rehearsed. Be prepped to answer:
- What are your goals?
- Do you have experience in franchising?
- Why are you choosing this particular business/industry/sector?
- Do you have experience in this industry?
- How hard are you willing to work?
- How does your spouse or partner feel about this?
- How do you propose to build a customer base?
- How will you finance this?
- Do you need to make money in your first year?
- Do you have experience in management and leadership?
- Why choose us, or are you playing the field?
- Why do you consider us a good fit?
- When and where would you like to open?
Now it’s your turn
Hopefully, you’ve made a good impression. More tricky though, is what should you ask?
- Will you supply me with a breakdown of all costs I stand to incur when I open the franchise?
- How much working capital will I need?
- Do you assist with raising finance for the franchise if I don’t have my complete 50% unencumbered funds?
- In your experience, how long will it take to start trading from the time I sign the contract? How much can I make? For a first date, this may appear a bit presumptuous, but it is better to get it out of the way and save time on flirting unless you get the idea it’s going somewhere. In fact, this is the number-one question franchisees ask. However, expect a stock standard answer: most businesses do not make money in their first year, and results vary from site to site and on how much work and energy you put into it. It is extremely difficult for a franchisor to predict net profit since each franchisee is an independent owner-operator. However, the franchisor will be able to provide you with estimated predictions or forecasts based on his/her experience with the franchise model.
- Can I achieve my personal goals with your concept? You’re looking to buy a franchise not just to achieve business, but personal goals too. Prepare a list of your most important goals. This prompts an important decision – you need to have skin in the game and take on the role of an owner operator. Take careful note, a manager doesn’t have the same skin in the game as you would, being an owner-operator – they work for a salary, not an overall goal of success of the franchise.
- Do our values and culture match up well? Determine if you could align with the franchisor’s values and whether you will be working with like-minded people.
- After the franchise is set up, what sort of ongoing support can I expect to receive after paying all my fees?
- Is there a franchise member committee/council I can reach out toto for input to the franchisor-franchisee relationship?
- What territories are open in my area, and will you help me find the best site?
- Will you help me negotiate a lease? For retail franchises, rent is one of the single largest recurring expenses. Landlords have an advantage here over a new business owner, so experienced franchisors can use their weight to balance the power play as leases can be complex.
- How long before I can open? This could either be a turnkey operation or do you need to build the store? Franchisors could have a list of recommended suppliers.
- Do you have a field representative who I deal with and who will provide support on an ongoing basis?
- Describe your training programme. This is essential, as the entire concept of franchising is that you are buying into a proven system. This includes not only proper operational training, but how to hire and train employees, financial management, and even how to be a leader. A concise operation and procedure manual should also be provided which is generally in an online format for you to login to and get the FAQ answered. Do you charge for your training?
- How do your royalties and marketing fees work? Most franchisors collect monthly royalties as a percentage (3% to 8%) of gross revenues, while some have a flat fee structure. Check if there’s a collective marketing fund (an additional 1% to 3% of gross revenues) for marketing the brand nationally and regionally.
- Just like starting your relationship with somebody, what are each of you expected to contribute to the relationship like water and electricity in your home? But in this case, additional advertising and promotions or would they be able to provide some assistance?
What is the exit strategy?
This is where the courting analogy falls. Talking an exit strategy is not ‘talking divorce’ before you have even got to know each other. Business experts advise beginning a franchise relationship with the end in mind. For instance, you may want to sell the business and/or retire and pass it on to your children.
By Eamonn Ryan