Questions to Ask a Franchisor
Questions to ask a franchise brand before you buy into it, written for a prospective owner meeting the franchisor's sales or development team. The 57 questions follow the order the decision does: the disclosure document, the company behind the name, costs and fees, territory and site, training and day-to-day operations, and the agreement itself, from guarantees and renewal to how you eventually get out. Franchise law differs by country and by state, so where a note calls something common, ask how it works where you would open.
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The questions
Each question, and why to ask it
Disclosure
When can I have the disclosure document, and who will go through it with me?
Why ask it
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.
How many units opened, closed, transferred or were terminated in each of the last three years?
Why ask it
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.
Can I have the full list of current and former franchisees, rather than a selected few?
Why ask it
Whether former owners have to be listed depends on the disclosure rules where you are, so ask what the document must contain. People who have left have no relationship with head office to protect, though some signed confidentiality terms on the way out, and several of those in a row is worth noticing too.
What lawsuits or arbitrations have there been between you and your franchisees, and how did each end?
Why ask it
A system that has been around a while will have some, so the count alone says little. Look at who brought each case and over what: several owners making the same complaint about earnings claims or a unit opened too close is a pattern, and you can raise it with the former owners you call.
Do you put any earnings figures in writing, and if not, why not?
Why ask it
Some disclosure documents carry a financial performance representation, where revenue or profit claims are set down in writing, and whether a franchisor may or must include one differs by country, so ask how it works where you are. If there is one, check whether the figures are revenue or profit, which units are counted and whether the strong ones are company owned. If there is none, a number quoted in conversation is not one you can plan on, however good it sounds.
How do units in their first two years compare with the figures you publish?
Why ask it
Published figures often leave out units that have not yet traded a full year, which is exactly the stage you would be at. Ask for the range across new units and where the weakest quarter of them sat, since that is the case to plan your cash around.
How much of the company's income comes from royalties, and how much from selling new franchises?
Why ask it
A franchisor that lives on royalties does well only when its owners' sales do. One that depends on initial fees has to keep signing people up, whatever becomes of them afterward. Where financial statements come with the disclosure document, use them to check what you are told.
The company
How long did you run this business yourselves before you started franchising it?
Why ask it
Years of operating its own units mean the model was tested with the company's money before it was sold to anyone else. A concept franchised within a year or two of its first opening is still being worked out, and the early franchisees pay for part of that.
Who runs the company day to day, and which of them has operated a unit?
Why ask it
Leaders who have worked a Saturday shift decide differently about hours, staffing and new products than leaders who have only sold franchises. Check the names against the management biographies in the disclosure document, including any earlier franchise brands they worked for and what became of those.
How many units does the company own and run itself, and how do they compare with the franchised ones?
Why ask it
Company units show whether head office can make money under its own rules, with its own fees and suppliers. If it has none, or has been selling them off to franchisees, ask why it would rather collect a royalty than keep the profit.
Who owns the company, and is a sale or a new investor expected?
Why ask it
The people who impress you in the meeting may not be the people you deal with in year three. A change of owner can bring new fees, new suppliers and a new support team, and the agreement normally lets the franchisor be sold without asking you.
Would my agreement be with you directly, or with a master franchisee or area developer for my region?
Why ask it
In some regions a brand is run by a local company that bought the rights, and that company, not the head office you are visiting, would train you, support you and collect your fees. If that is the arrangement, its track record and finances matter as much as the brand's, and so does what becomes of you if it loses its own agreement.
Do you own the brand name outright, and is the trademark registered where I would open?
Why ask it
The right to trade under the name is most of what the initial fee buys. If the mark is licensed from a parent company, still pending or being challenged, find out what the agreement gives you should the franchisor lose the use of it.
Which units are struggling right now, and why?
Why ask it
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.
Who do your franchisees lose customers to, and what are you doing about it?
Why ask it
A specific answer names rivals, including the independent down the road, and says where the brand wins and where it does not. A franchisor that claims to have no real competition has not been looking, and you would be finding out on its behalf.
What do your most successful owners have in common, and who do you turn away?
Why ask it
A franchisor that can describe the applicant it rejects has standards beyond a cleared payment. If it sounds as though anyone with the capital gets approved, expect the same looseness about who is allowed to open near you.
How many of your owners have gone on to buy a second unit?
Why ask it
Owners who have seen their own accounts and then put more money in are a reference no brochure can match. It also helps to know how many units the largest operators hold, since a network dominated by a few big groups can leave a single-unit owner with a quieter voice.
How many units do you plan to open in the next three years, and how will support keep up?
Why ask it
Fast growth is presented as good news, and for an owner it can mean a thinner share of the trainers, the field staff and the supply chain. Ask what has already been hired or built for the openings that are sold but not yet trading.
Costs and fees
What does it cost to open, from signing to the first day of trading, at the top of your range?
Why ask it
The disclosure document gives a range, and it is tempting to plan against the bottom of it. Find out which items push a project to the top and which costs sit outside the range altogether, so you are not adding them up for the first time after signing.
What did the three most recent openings actually spend, and how long did each take from signing to opening?
Why ask it
A published range can lag behind what builders and landlords charge today. Recent projects give you this year's figures and a realistic timetable, and every month of delay is rent and loan interest with no sales coming in.
What does the initial franchise fee pay for, and is any of it refundable if I never open?
Why ask it
The fee typically buys the right to use the name and the system, and sometimes training or help with a site, but brands bundle it differently. Find out what happens to the money if no site is approved or your financing falls through, and take that answer from the agreement, not from the conversation.
How long does a new unit usually take to cover its own costs, and how much cash should I hold for that stretch?
Why ask it
Owners who run out of money before the unit pays its way lose the business however good it might have become. Test the franchisor's answer against what recent owners say, and budget for your own living costs over the same months, since the estimate may not include them.
What is the royalty, what is the marketing fee, and what else is charged monthly?
Why ask it
Behind the two headline percentages there are often technology fees, software licenses, call center charges and required subscriptions. Get the complete list as line items, because the total is what your business has to carry every single month.
Is the royalty charged on gross sales, and is there a minimum due in a slow month?
Why ask it
How the agreement defines gross sales decides this: in some, the percentage is due on money a delivery platform keeps as commission, or on the face value of a voucher. A fixed minimum is harder still, because it falls due in the weeks when the unit can least afford it.
What does the marketing fund actually spend money on, and do franchisees see the accounts?
Why ask it
National funds sometimes buy advertising and sometimes largely fund recruiting new franchisees. The useful details are whether the fund is audited, whether the accounts go to owners, and how much of it gets spent in markets that look like yours.
How much must I spend on local advertising on top of the fund, and who decides where it goes?
Why ask it
Many agreements set a local spend as a share of sales, with receipts required, and a separate budget for the opening weeks. Whether you choose the channels yourself or must use the brand's agency and approved materials changes what that money can do for you.
Am I required to buy from your suppliers, and do you receive a rebate on what I buy?
Why ask it
Rebates from suppliers are a common part of franchisor income and not automatically a problem, but you should know about them before you sign. Take the price list away and compare a few staple items with what you could source locally.
Do you set my prices, and do I have to take part in national discounts?
Why ask it
A promotion can lift the sales the royalty is charged on while each discounted order earns the owner less. How far a franchisor may control prices differs by country, so ask how it works where you would trade and what the last big promotion did to owners' margins.
Do you offer financing, or know lenders who have funded your units before?
Why ask it
A bank that has financed several openings in the brand has watched how those loans performed, so its appetite is a second opinion on the system. If the franchisor lends directly, compare its terms with a bank's and weigh what it means to owe money to the company that can end your agreement.
Territory and site
How is my territory defined, and what are you allowed to put next to it?
Why ask 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.
Do you sell online, through delivery apps, or through retailers into my territory?
Why ask it
Older agreements were often drafted before these channels existed and say nothing about them. 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.
Is another unit, yours or a franchisee's, planned or already sold near the area I want?
Why ask it
Territories are sold well ahead of openings, so a map of trading units understates how crowded a market is about to become. Ask to see the sold and reserved areas as well as the open ones.
Who finds the site, and what do you check before approving it?
Why ask it
Some brands have their own property team and others hand you a list of criteria and wait for submissions. Approval normally means the site meets the brand's standards and not that anyone is promising it will trade well, so ask how units on similar sites have done.
Who signs the lease, and what rights do you take over the premises?
Why ask it
A franchisor may hold the lease and sublet to you, or require a clause that lets it step into the space if the franchise ends. Both are common, and both mean that losing the franchise can cost you the location too, so have a lawyer read the lease alongside the franchise agreement.
Is there a deadline to open, and what happens if the site or the build runs late?
Why ask it
Agreements often allow a fixed number of months to open, and delays over permits and landlords are not yours to control. Find out whether extensions are granted, whether they cost money, and whether a missed date can end the agreement with the fee kept.
If I want a second unit later, do I get first call on the neighboring area?
Why ask it
Owners who do well usually want to grow next door, and by then that area may already be sold to someone new. A right of first refusal, or a multi-unit deal with its own opening schedule, has to be written in at the start to mean anything.
Support and operations
What does training cover, how long is it, and what does it cost me?
Why ask it
Travel and lodging are often the owner's bill, and so is the time your first staff spend in the classroom. Find out too what happens if you do not pass after the franchise fee has been paid, and what ongoing training you are committed to.
Who from your team is on site during my opening weeks, and for how long?
Why ask it
The first two weeks are when new staff, new equipment and curious customers all arrive at once. Get the number of days and the roles of the people who come, and whether that help is included or billed to you along with their travel.
Who is my field support person, how many units do they cover, and how often will I see them?
Why ask it
A support manager spread across several dozen units cannot visit any of them often. The ratio is a number the franchisor can give you on the spot, and it says more about the help you will get than any description of the support program.
When an owner's sales are falling, what do you do, and can you give me a recent example?
Why ask it
Every franchisor promises support, and this asks for the evidence. A real example has a visit, a plan and a result in it. An answer that moves quickly to default notices tells you what a struggling owner here receives.
Which technology am I required to use, and who do I call when it stops working on a busy day?
Why ask it
The register, the ordering app and the booking system are usually chosen for you. What matters in practice is the help line's hours, how fast a dead terminal is replaced, and whether you can get your own sales data out of the system in a form you can use.
Do I have to work in the unit full time, or can a manager run it?
Why ask it
Some brands require the owner on the floor, and others sell the idea of owning from a distance. Ask how many current owners really run theirs through a manager and how those units compare, because a manager's wage comes straight out of what you had planned to earn.
Can I read the operations manual, or at least its contents page, before I sign?
Why ask it
The agreement binds you to follow a manual that most people first see in training. It sets opening hours, uniforms, suppliers and much of the daily routine, and the franchisor can usually rewrite it whenever it likes, so it is fair to ask what you are agreeing to follow.
How often are units inspected, and what follows a failed visit?
Why ask it
Inspections protect the name you are paying for, including from a careless owner in the next town. Ask to see a blank scoring sheet, and find out how many failures lead to a formal default and how long an owner gets to put things right.
Is there a franchisee council or an independent owners' association, and what has it changed?
Why ask it
A council picked by head office and an association the owners run themselves are different things. Ask for one decision that franchisees got reversed or reshaped in the last couple of years. If nobody can think of one, the listening is for show.
The agreement
Which terms have you changed for other franchisees, and which are never negotiable?
Why ask it
Franchisors often say the agreement is the same for everyone, and the core of it usually is. Smaller points such as the opening deadline, a territory boundary or a cap on the transfer fee are sometimes moved, and a franchise lawyer will know which requests are reasonable where you are.
Do I have to sign a personal guarantee, and does my spouse or partner?
Why ask it
A guarantee can put your home and savings behind the business even when you trade through a company. What it covers and how far it reaches depends on where you live, so go through this one line by line with your own lawyer.
What happens if I miss the performance targets in the agreement?
Why ask it
Many agreements contain minimum performance clauses that let the franchisor take back territory or terminate the relationship. The telling detail is how often those clauses have been used in the last three years, and what the process looked like from the owner's side.
What changes are you planning that will cost me money?
Why ask it
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.
On what grounds can you terminate the agreement, and how long would I have to fix a problem?
Why ask it
Look for the list of defaults, which of them can be cured, and how many days the notice gives. Then ask how many owners were terminated in the last three years and why, and set the answer beside the turnover table in the disclosure document.
How long is the term, what does renewal cost, and can you change the terms at renewal?
Why ask it
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.
Can I sell the business, and what do you charge to approve a transfer?
Why ask it
In most agreements the franchisor approves the buyer, usually charges a transfer fee and sometimes holds a right to buy the unit first. Those three terms decide much of what the business is worth to you at the end.
What happens to the franchise if I die or become too ill to run it?
Why ask it
Agreements commonly give a family a limited time to find an approved operator or buyer, sometimes only a few months. Knowing the window now lets you prepare, with insurance or a trained second person, so that nobody has to discover it in the worst week of their lives.
What am I restricted from doing if I leave or the agreement ends?
Why ask it
Non compete clauses can bar you from a similar business at the same site or nearby for a period after you leave, and some apply while you are still an owner. How long, how wide an area, and whether a court where you live would enforce it are questions for your own lawyer before you sign.
Who owns the customer data, the phone number and the social media account?
Why ask it
Often the franchisor does, which matters at renewal, at resale and at termination. It is a short question, and the answer sets a limit on how much of what you spend years building is actually yours.
If we end up in a dispute, how is it resolved, where, and who pays?
Why ask it
Many agreements require mediation or arbitration, often in the franchisor's home city and under its local law. That can make a modest claim too expensive to bring, so ask what the clause says and have a lawyer explain how the law where you live treats it.
What are the steps from here to signing, and can my lawyer and accountant have the documents for as long as they need?
Why ask it
A sound franchisor expects you to take advice and leaves room for it in the process. A deadline that arrives before your lawyer has finished reading, or a deposit requested to hold a territory, is pressure, and it is fair to say so out loud.
Doing the work before you sign a franchise agreement
Practical guidance for the conversation itself
Which questions belong in which meeting
Before the first real meeting
Ask for the disclosure document as soon as the franchisor will release it and read it before you travel anywhere. Much of Disclosure and The company can be answered from its pages, which leaves the meeting for the gaps and for anything the document says differently from the salesperson.
At the discovery day
A day at head office is arranged to sell you the brand, and it is also your one chance to meet the people who train and support owners. Put Costs and fees to the finance staff and Support and operations to the people who train and visit owners, not to the person paid when you sign.
With the agreement on the table
Territory and site and The agreement only make sense with the actual wording in front of you. Mark each clause the answers refer to, and bring a franchise lawyer's notes to the conversation instead of collecting the lawyer's view afterward.
Write every answer down
Keep a dated note of who said what. Many franchise agreements state that nothing promised outside the document counts, so an answer you are relying on, such as a protected boundary or a waived fee, needs to be added to the agreement in writing.
Reading the disclosure document
- Read the litigation history and the franchisee turnover table before anything else. They are the driest pages and they hold the most information.
- Have a franchise lawyer read the agreement, not a general commercial lawyer. The clauses that matter are standard inside this industry and unusual outside it.
- Compare the disclosure document against the agreement itself. Where the two differ, have your lawyer tell you which one you would be held to.
- The financial performance section, where one exists, sets figures down in writing with the basis for them. Numbers offered over coffee come with neither.
- Add up every charge expressed as a percentage of revenue. That total comes off the top before rent, wages or anything you pay yourself.
Calling existing franchisees
- Call more of them than the franchisor suggests, and start with the former owners on the list.
- Ask each one the same three questions: what did it really cost to open, how long until you covered your costs, and would you buy it again.
- Ask how long the franchisor took to answer their last genuine problem.
- Ask what they wish they had asked before signing. That question produces more than any other on the call.
- Speak to somebody operating in a market like yours. A unit in a dense city center tells you little about a suburban site.
Warning signs
- The disclosure document arrives late, or a deposit is requested before you have seen it.
- Pressure to sign ahead of a fee increase, or because someone else is about to take your territory.
- Revenue figures given verbally that appear nowhere in writing.
- Refusal to hand over the complete franchisee list, current and former.
- More of the network's growth coming from selling franchises than from units trading well.
- Nobody will tell you which units closed last year, or why.