KNOW WHAT TO ASK Questions for existing franchisees
Whether you are buying a business that has no brand or a franchise business; there are risks. You know what they say: “Four out of five businesses fail in the first five years”.
Research shows that when buying a franchise business the odds are a hell of a lot better, but the reality is that all businesses can fail for a multitude of reasons, including a franchise with a brand.
To minimise the risk in business, you need to make sure you do an enormous amount of due diligence in the franchise system that you want to be a part of. You need to ask yourself: How long has the franchise being going? How many stores? Who is behind the business? What is my experience with this franchise network – through the application process? etc, etc etc.
One of the most effective ways to truly find out about the inside running of a business is to ask the existing franchisees in the business.
Below are some questions that I would be asking if I was looking at buying a franchise and also some tips on how to approach this part of the process.
First of all, the key thing is to be respectful of the franchisee’s time; they have a business to run and you need to be mindful of meeting them at a convenient time that suits them. You will find most franchisees are generous with their time and very willing to share their experiences as they were once in the same position as yourself.
Some of the questions, along with the reasons and what I would be considering are below:
Most franchisees contribute to the marketing fund as a percentage of sales. I would be asking:
- What type of marketing the franchisor does?
- How do they monitor the success of each promotion and marketing campaign?
- And, extremely importantly, How do they communicate the promotion to the network?
- What tools do they offer the franchisee for them to help with their SLAM PLAN (strategic local area marketing, as we call it)?
Do not get caught up in the ‘Do they do TV’ as TV may not be the best way to market that franchise. For example; if you have a young brand, there may be better options, such as outdoor advertising and radio – and it is much cheaper.
The type of POS (point of sale) the business uses is important for you to manage your business. I would be asking the franchisee: What type of POS do they have? And, What information do they obtain from it?
Communication is the key in any organisation and franchising is no exception. In fact, probably even more important, as you are often running a business remotely from the head office of the franchisor. Consider the communication strategy that the franchisor has.
IT is the way of the future. You would want the franchise network that you are getting involved with to have a strong on-line or e-commerce strategy. Check out with the franchisee what systems they use for their business and for communication.
This is where the story about your financials is being told. Find out:
- What system do they use?
- Do they do they own accounts? or, Do they use a book keeper?
- Does the POS have an integrated system that they can use?
- What are the requirements that they need to fulfil for the franchisor?
We insist that for both of our businesses, Salsa’s and Boost, the franchisees submit their P&Ls (profit and loss) monthly. The reason for this is that it insures that the basic business disciplines are followed which allows for greater success. If you do not have strong financial disciplines in your business then this is a risk to the success of your business.
One of the great things about being part of a franchise network is the brand. One thing I would like to know is:
- What action does the franchise take with people who are damaging their brand that the entire network is working hard to grow and protect?
Seeing in the disclosure document that you will receive from the franchisor that the franchisor has terminated a franchisee can be seen as a positive thing, as you can see that they do take steps to protect the brand at all costs. This is an important role for any franchisor.
There are a dozen more questions to ask – this is just a start. The final question would be:
- “If you had your time again would you choose this franchise and if so why”?
Buying a business, whether a franchise or not, is a huge decision as it is not only monetary, but it is a whole lifestyle change. You will need to live and breathe this business for it to succeed. You need to make sure that you do as much research as possible to ensure your decision is the right one.
Janine Allis opened the first Boost Juice Bar in Adelaide in 2000. Boost is the largest and fastest growing juice and smoothie chain in the Southern Hemisphere.
Janine’s company; Boost Investment Group, has now bought Salsa’s Fresh Mex Grill, which they are now franchising. Details: www.boostjuice.com.au