When it comes to buying a business or starting out in a brand new venture, it is vital to do your “due diligence” so you can know if the business is right for you. In franchises its the same, however it is reasonable to expect the franchisor should be able to supply you with more information beyond the usual sales pitch so you and your support team (accountant, advisor, mentor, business coach etc.) can make a rational decision on what’s possible. It should alsoguide you to see if there is a suitable match between your skills and attitudes for the business. In an earlier post on franchising I gave a broad outline of the major things to look for, now lets go deeper and see what else you might do before you make a “leap of faith”.

You will have found a few franchises worth looking into and now you are about to come face to face with their sales representative. Sure they will make it sound all nice and rosy, but you can cut to the chase once they have done their presentation and give yourself more info to work with if you ask a few poigniant questions. I have listed a few questions and some likely resposnes so you can second guess their responses and get greater depth. (That’s the theory!)

Is there growth potential in the market? – The usual response might be “Oh sure we have doubled the amount of franchise businesses in the last 12 months and it’s growing from there.” This may well be true, your aim is to find out how many were sold in the last few years so you can compare, then ask about how long people stay in their franchises, e.g. how many get out at the end of the first contract period? And what statistics do you have that you can show me the customers are growing, not just the franchise numbers? (It’s one thing to project to sell x franchises and entirely another thing to actually do it! And another thing to have the customers to buy what’s on offer. They should have clear statistics showing the amount of sales in existing franchises.)

What opportunities exist? - “Oh there’s lots, things are going ahead in leaps and bounds, let me show you a map of your suburb” You may be looking at an area to explore, however do the right thing and ask to see a map of where they currently are and where they want to be, some have maps of the country with different coloured pins in the various territories and you should be able to see the sold ones, and the one’s up for grabs. For you this gives a big picture view and lets you see what other areas might be available for expansion later.

Tell me about the competition? – They will no doubt tell you about other franchises in your area, some may even “bad mouth” them to build themselves up. What you really need to know is if there are many smaller players that could eat into your business, if they have done the research they can tell you more, if not they might be at a loss to know more about your region or territory and the actual customers you can expect to see through the door.

How long did it take for the average franchisee to get a return on investment? – “Of course this varies and its so hard to tell.” But they should be able to do a model of the AVERAGE so they can give an indication of the return. Imagine putting $200k into a business but not getting a return on that investment for 12 months, that could be very alarming… better to know now than later. If the franchisor does not know the answer, then ask some of the franchisees, if they don’t know maybe the training and support team can tell you… or maybe they have no idea, remember the aim of buisness is to make a profit, so they should be abel to tell you when on average that might happen.

Does the business develop into a passive income stream? – Who wants to work all the time, if you can get a return on your investment to the degree that you do not have to work, then that might be useful… so ask how many have achieved that, then get their details, if you sign up they should become your mentors! or if nothing else a great point of research info on the company in question.

What hours does the average franchisee put in to make a real go of the business? – Again it’s profit, and the how hard do I work question. It’s not a job you are buying, it’s a business system, it would be ludicrous to go from working a 5 day week to a six day week for the same return or even a lower return! Sure the change might be great (sick of the old job?) but how long will that last?

Staff, are they easy to get and train in this industry? – Back to the passive income section, you will need people to do it for you right? So lets make it easy to do, not a struggle. Some franchises will have people queing up to work for them whle other will avoid it due to the hassle.

This list of questions is a starting point to choosing a suitable franchise, its up to you to develop a longer list of questions but these ones will probably be the key ones in time. Enjoy the hunt for the right business for you, I ope the list makes it a little easier at least.

Here is a link to a checklist on franchising questions (Australia) a prospective franchisee should ask. Franchise Checklist