It’s always a good idea to bring up the subject of earnings as the last point in your conversations with existing franchisees. Most people are reluctant to discuss their income with strangers, and you’ll find the franchisees are more willing to cover this subject after you have spent some time visiting with them and built up some rapport.
At that point, they know you’re not a competitor trying to get information, but rather a serious prospective franchisee who will need the information to proceed.
The most valuable source of information on any franchise system is its existing franchisees. These are the people who are living the life of a franchisee every day, and they can tell you the reality of what that life will be like for you if you decide to join up yourself.
With any franchise you are interested in, you should plan on calling or visiting a number of the existing franchisees during your investigation. It sounds almost trite, but whatever the prevailing attitude of the existing franchisees on any issue is, it will almost certainly be your attitude on the issue as well if you decide to invest.
Make sure that you converse with a sufficient number of the existing franchisees to ensure you have a sense of the prevailing attitudes of the group. Though you want to find the overwhelming majority of franchisees to be happy and supportive of the franchisor (so you will probably be as well), it is important to try to find at least one or two unhappy franchisees during your investigation.
When you find an unhappy camper, don’t only listen to the complaints, but also try to determine what makes this franchisee different from the rest you’ve been visiting. If you find you identify with the positive ones and feel the negative franchisee is not at all like you, then you should be fine.
If you find you are more like the person who is unhappy, however, this is probably not the right franchise for you.
Important topics you should cover during conversations with existing franchisees include:
- Training programmes. Determine how well the initial training programmes and support prepared the franchisees for opening and running their business. Make sure to ask for specific examples of strengths and weaknesses in the training programme. Also ask what surprises the franchisees had after training.
- Opening support. How easy did the franchisor make the process of getting the first unit open and operating? Was there assistance in site selection, lease negotiation, construction and design, securing financing, permits or any other factors unique to getting this business up and operating? Also, were there any missed areas where they should have received support but didn’t? A great final question would be, “If you had to do it all over again, what is the most important thing you would do differently?”
- Ongoing support. Ask how effective the ongoing support services of the franchisor are in terms of helping franchisees deal with the problems that come up in the running of their business. This subject goes past the initial start-up stage and really explores what the franchisor does to help the business succeed long-term.
- Franchise marketing programmes. Most franchisors collect marketing rands from every franchisee into a pool that is spent to promote the brand. You need to know whether the franchisees are happy and supportive of the way this process is handled. Note: This is typically the area where you’ll find the most complaining in any franchise system you examine. Make sure to explore any complaints in detail, especially if they are common to a number of franchisees, so you’ll understand what you’re getting into in this very important component of the business.
- Purchasing power. Does the franchisor use the collective buying power of the total system to get discounts on supplies and inventory beyond what an independent operator could achieve? This factor is one of the biggest advantages of joining a well-run franchise system and should offset much of the upfront fees associated with being a franchisee. Make sure to ask for specific examples, pro or con, in terms of the franchisor’s attempt to leverage this franchise system advantage.
- Franchisor/franchisee relations. Determine how the franchisees feel about the franchisor in general. Is the franchisor supportive, caring, focused on their success, responsive, effective, organised and trustworthy? Ask for specific examples or anecdotes from existing franchisees to illustrate any general comments they make to you. Make sure you have a good feeling about the values of the organisation and that they are consistent with your values.
- Franchise investment. The disclosure document will give you a wide range for the investment required in the business. Use the existing franchisee discussions to narrow that down to a reasonable and conservative estimate of how much capital you’ll need for this franchise to be successful in your market or region. Make sure you ask if they made any expensive mistakes opening their unit that they would not repeat on the next one.
- It’s critical that you also have a strong sense of where the average franchise unit is in terms of earnings. You should know the answers to the following questions: How much money does the typical unit make, given a specified length of time in business? How soon does a typical unit start making money after opening? What is the range of answers for these questions? If you are simply not able to determine these answers to your satisfaction in your research and conversations with existing franchisees, do not settle! Tell the franchisor what the problem is and that you cannot proceed unless you have these answers and can confirm them with actual existing franchisees.
- Ex-franchisees. You should ask your prospective franchise to supply you with a list of ex-franchisees along with existing ones. It’s sometimes helpful to call people in this category just to see why they left. The answers won’t necessarily be negative, but if they left because it was a bad experience, spend some time asking them about the reasons they felt the opportunity wasn’t right for them. As you compare and contrast these conversations with those you’ve had with existing franchisees who are happy, you may get insight that will help you determine if there is a key ingredient for success. You can then use this insight to help you determine if this is the right franchise for you.
Remember, the existing franchisees were all in your current position at some point in the past. Though you might occasionally find a crabby one, usually they are quite willing to take the time to talk with you.
Being organised in advance in terms of your questions is a great way to show respect for the franchisees’ time and get the most out of this valuable source of information. This will be the most enjoyable and informative part of your investigative process.