Questions to Ask a Franchisor

The questions

Open any question to see why it works.

1. 1

   When can I have the disclosure document, and who will go through it with me?

   In many countries a franchisor must give you a disclosure document a fixed number of days before you sign anything or pay anything. Asking early is completely normal. Reluctance, or a copy that arrives the same day as the contract, is the first real information you get.

2. 2

   How many units opened, closed, transferred or were terminated in each of the last three years?

   These figures usually appear as a table in the disclosure document, and the closures and transfers matter more than the openings. A network growing fast while units change hands at the same rate is selling franchises rather than running a system.

3. 3

   Can I have the full list of current and former franchisees, rather than a selected few?

   The list of people who left is the most valuable page in the whole document and the one handed over most reluctantly. Former owners have no ongoing relationship to protect and no reason to manage what they tell you.

4. 4

   Do you publish a financial performance representation, and what exactly is in it?

   This is the section where a franchisor may make claims about revenue or profit, and those claims have to be substantiated. Read carefully whether the figures are revenue or profit, which units are included, and whether the strong ones are company owned.

5. 5

   If there is no earnings claim, why not?

   No franchisor is required to make one, and legitimate reasons exist, such as wide variation between markets. But if the answer is that the numbers are wonderful and simply cannot be published, then those numbers do not exist in any document you can rely on.

6. 6

   What does it cost to open, from signing to the first day of trading, at the top of your range?

   The disclosure document gives a range and people plan against the bottom of it. Ask which items push a project to the top, then add working capital for the months before the unit breaks even, which is the cost most consistently underestimated.

7. 7

   What is the royalty, what is the marketing fee, and what else is charged monthly?

   Behind the two headline percentages sit technology fees, software licenses, call center charges and required subscriptions. Ask for the complete list as line items, because the total is what your business has to carry every single month.

8. 8

   What does the marketing fund actually spend money on, and do franchisees see the accounts?

   National funds sometimes buy advertising and sometimes largely fund recruiting new franchisees. Ask whether the fund is audited, whether the accounts are shared with owners, and how much of it gets spent in markets that look like yours.

9. 9

   How is my territory defined, and what are you allowed to put next to it?

   Territories range from exclusive by postal code to no protection at all. The question that matters is not what you are granted but what the franchisor retains the right to do, including opening a unit just across your boundary that draws from the same customers.

10. 10

    Do you sell online, through delivery apps, or through retailers into my territory?

    Channels that did not exist when many agreements were drafted now carry a large share of sales. Find out who books the revenue when a customer in your area orders through the brand's own app, and whether you are obliged to fulfill it.

11. 11

    Am I required to buy from your suppliers, and do you receive a rebate on what I buy?

    Supply chain rebates are a normal part of franchisor income and are not automatically a problem, but you should know they exist before you sign. It usually explains why required pricing sits above what you could source locally.

12. 12

    What does training cover, how long is it, and what does it cost me?

    Ask who pays for travel and lodging, whether your staff are included, and what the continuing training obligation is. Also ask what happens if you do not pass it after the franchise fee has already been paid.

13. 13

    Who is my field support person, how many units do they cover, and how often will I see them?

    A support manager responsible for seventy units visits nobody. That ratio is a concrete number and it tells you more about the help you will get than any description of the support program.

14. 14

    What happens if I miss the performance targets in the agreement?

    Many agreements contain minimum performance clauses that let the franchisor take back territory or terminate the relationship. Ask how often those clauses have been used in the last three years and what the process looked like from the owner's side.

15. 15

    How long is the term, what does renewal cost, and can you change the terms at renewal?

    Renewal is usually onto whatever the current agreement says, not the one you signed, so anything you negotiated can quietly vanish a decade later. Ask whether renewal has ever been refused and on what grounds.

16. 16

    Can I sell the business, and what do you charge to approve a transfer?

    Your exit is controlled by the franchisor: they approve the buyer, they usually charge a transfer fee, and they sometimes hold a right of first refusal. This is what decides whether the business is worth anything to you at the end.

17. 17

    What am I restricted from doing if I leave or the agreement ends?

    Non compete clauses can stop you running a similar business at the same site for years, and termination clauses can require you to hand over the phone number, the lease and the customer list. Read this part before you read any of the marketing.

18. 18

    Which units are struggling right now, and why?

    The willingness to answer is the point of the question. A franchisor who names a market that did not work and explains what they learned is more credible than one who says everybody is doing well, which no network of any size can honestly claim.

19. 19

    What changes are you planning that will cost me money?

    Remodels, new equipment, mandatory point of sale upgrades and rebrands are usually the franchisor's right under the agreement and your expense. Ask what the current refresh cycle is and when a unit opening now would fall due.

20. 20

    Who owns the customer data, the phone number and the social media account?

    In most systems the franchisor does, which matters at renewal, at resale and at termination. It is a short question, and the answer sets a hard limit on how much of what you spend years building is actually yours.