15 Signs of a Good Franchise System

We all know it is important to do your due diligence before buying a franchise. In a previous post, we talked about questions to ask the franchisor. How do you evaluate what they are telling you and what you are reading in the FDD? Here are 15 signs that the franchise system you are looking at is a sound investment.

1. Franchise is opening stores at a steady pace and growing same store sales.
2. The customers give rave reviews about the franchise’s products / services.
3. There are number of franchisees that have been there for a long time.
4. Franchisor regularly introduces new products and services.
5. Franchisor has regular meetings to get feedback from franchisees.
6. Franchisor does not delve into every minute detail of operations.
7. Franchisor gives flexibility to franchisees for local marketing and advertising.
8. Turnover among existing franchisees – either through business sale or shutdown is low.
9. Franchisees have easy access via email, phone, etc. to management at the franchise office.
10. The area supervisor from the franchise spends time with you during store visit and listens to your concerns.
11. Franchisor does not change store procedures and rules for franchisees frequently.
12. Franchisor visits the franchisee stores on a regular basis and provides improvement suggestions.
13. Franchisor is not opening stores in the close proximity of existing ones.
14. The prices charged for mandatory items from commissary are in line with market.
15. The franchise provides reports on a regular basis with the details on how they are performing at individual, regional and national levels.

Meta-Franchise Consulting can help you figure out which franchise systems fit your requirements AND possess these positive attributes.

20 Questions for the Franchisor

When you enter into a franchise agreement, you are taking on a business partner for the life of your franchise. The Franchisor will provide the initial training and on going support for everything from technical issues to marketing advice. To make sure you know exactly who you are going into business with, it is import to thoroughly interview the Franchisor. Many clients tell me they know they should be asking a lot of questions, but they don't know exactly what to ask. Here is a list of questions to help you get started. As you hear the answers to these questions, you will probably think of many follow-up questions that will provide you with the information you need to make an informed decision.

1. What are the strengths of your franchise?
2. Where do you see this franchise system in 5 years and what steps are being taken to reach that goal?
3. Who is your competition?
4. How are you viewed in the consumer marketplace?
5. Can you give me a break down of all of the expenses associated with getting started (franchise fee, equipment, product, training, real estate, etc.)?
6. How much additional capital (working capital) will I need after I launch my franchise?
7. Please explain the contractual responsibilities if I join your franchise system (length of agreement, renewals, etc.).
8. What can I expect to earn if I join your franchise system and do you disclose this amount in an Item 19 Earnings Claim?
9. What does your training program look like? What kind of ongoing training do you offer?
10. What goods or services do I have to purchase directly from you or your preferred vendors, and can I competitively shop for a better deal?
11. Is there an advertising fund that I must contribute to and what rights do franchisees have to audit that fund?
12. What is my protected territory and how is it defined?
13. What are your plans to develop additional franchisees in my state and how will that impact my franchise?
14. How many of your franchisees have failed and why?
15. Will you assist me with financing, real estate selection, and construction?
16. Have you been sued or are you currently being sued?
17. How have previous franchisee/franchisor disputes been settled?
18. What happens when I want to retire or sell my business?
19. If I sell my business and leave the franchise system, what am I forbidden to do?
20. What is the biggest complaint from your franchisees?

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