8 Questions to Ask Before Buying a Franchise

 

Investing in a franchise in Australia or New Zealand is one of the most enterprising and dynamic ways to conduct business. Overall franchising is a highly profitable sector to be in. Franchise sales in Australia is projected to grow at 1.7% per annum between 2013- 2018, reaching 177 billion in 2018. In New Zealand, franchising sales reached $27.6 billion over the last year, which is 11% of the country’s GDP. After all, there is a franchise operating in almost every business category, from the automotive industry to the health food industry and beyond in Australia and New Zealand today.

So if you’re looking for a change in career or lifestyle, have you considered buying a franchise? Well before you invest in a franchise, it’s vital you ask the right questions. The purpose of this article is to share with you the questions you need to ask before buying a franchise, so you can put your best foot forward and invest in your franchise of choice with confidence.

 

1. Can I have a disclosure document?

Both the Franchising Code of Conduct in Australia and the Franchising Code of Practice in New Zealand requires all franchisors to provide potential franchisees with a disclosure document. In this document, you should find all of the vital information about the franchise, such as the cost, payments, your territory rights, and what happens once your franchise agreement comes to an end. A disclosure document should also contain the contact details of all current and past franchisees should you wish to get in touch with them.

 

2. How much will I earn as a franchisee?

Most franchisors won’t give you an exact number because it’s highly dependent on each franchisee. However, while a franchisor cannot give you an exact figure, they should at least be able to provide you a rough estimate of how much you can earn as a franchise owner. Unfortunately, by law, franchisors aren’t required to give you any figures. However, we always say be wary of any franchisor who won’t even give you a rough estimate.

 

3. What are my upfront fees and are there any ongoing costs? 

No matter what franchise you buy, you’ll be required to make a sizeable upfront investment for your franchise. You will also be required to pay some ongoing fees to the franchisor, which is different from franchise to franchise. Sometimes you may also be asked to pay for outlays that you might not have expected. So it’s important that you ask, and are clear about, all of the upfront, ongoing and future costs associated with the franchise.

 

4. What happens if the franchisor fails?

The reality of franchising is that sometimes, franchises fail. It’s the same as with any other business out there. So, before buying a franchise, make sure you ask the franchisor about your rights and obligations should the franchisor fail. It might feel awkward to ask this question, however, you need to be as informed as possible before buying a franchise, as it is a big investment you are investing in.

 

5. How many franchisees fail?

Again, while this might seem like a challenging question to ask, it’s within your right to know how many franchisees have failed. While fail rates are dependent on many things (such as a franchisee’s aptitude to run a franchise business), if the franchise you’re looking at buying has a high fail rate, be very cautious. You want to invest in a franchise that has a high success rate because this means the franchisor is dedicated and committed to helping franchisees thrive and succeed. It also means it’s an in-demand and profitable business venture.

 

6. How do you communicate with your franchisees, and how often? 

Some franchisors will touch base with their franchisees regularly, while others will leave franchisees to their own devices. Neither way is right or wrong, it just depends on how often you’d like to be in contact/communication with the franchisor. Perhaps you’d like ongoing support and advice, or perhaps you’d rather be left alone to figure things out for yourself. Either way, be sure to ask the franchisor about their communication style prior to buying a franchise.

 

7. Can you pinpoint my strengths and weaknesses as a candidate to buy your franchise?

A good franchisor will be able to determine your strengths and weaknesses as a potential franchisee candidate, and they won’t be afraid to tell you if you’re not the right fit. After all the best franchisors want their franchisees to succeed and make a success of their business, so they won’t accept just anyone to be a franchisee.

 

8. What sets you apart from your competition?

Certain brands are competitive, certain industries are saturated and other brands are more innovative and unique. So it’s important to determine where the franchise you’re looking to buy into falls on the spectrum. Ask the franchisor about their unique selling points and what they believe sets them apart from the competition.

Try not to view these questions as negative, but rather realistic and practical. It’s easy to be optimistic and excited when buying a new franchise, so it’s best you don’t fall in love with the idea of a franchise before you truly understand its full potential to succeed.

 New Call-to-action