Franchisee Due Diligence: 3 Questions To Ask Former & Existing Franchisees

Written by Editor

If you’re looking to invest in a franchise, it is often recommended to speak with existing or former franchisees to gain a better understanding of what lies ahead. Furthermore, there are even franchise regulations that require franchisors to disclose their franchisee information to prospective ones.

Related: The Worst Scenarios That Could Happen After Acquiring A Franchise

However, this isn’t an over-arching scenario as not all countries or territories have a specific franchising law to govern such proceedings. Even if there is a relevant franchising law, it may not necessarily be a requirement for franchisors to list down former and/or current franchisees with their contact information. In such cases, you’ll have to find other ways to evaluate the franchise concept you’re considering. Whatever the case, should you actually get the opportunity to speak with the franchise’s current or former franchisees, you should have three key questions ready to fire away.

Are You Happy With Your Decision To Acquire This Franchise?

Ask about their overall satisfaction level with their decision to acquire the franchise, especially relating to the level of opening and on-going franchise support, which is the main reason why you’ll be committing to all those franchise payments in the first place.

Are You Making Enough Money?

All businesses have a ramp up phase before they start to be operationally profitable. While no two situations are the same, at least you’ll have some sort of estimation in preparing your working capital for the opening few months of operations. Also, enquire about the revenue, costs and profit level of the business to see if there are any major discrepancies between an actual scenario and what the franchisor is saying.

Would You Do It Again?

Now that the former/current franchisee you are speaking with possesses the wisdom of hindsight, ask about the amount of time and effort they had put into the business to make it a success (if it is). Basically, what you need to know is whether the potential end result of taking up the franchise investment is worth all the resources that is being asked. Maybe there could be other easier ways to make money. Or maybe, it really is an amazing franchise opportunity you shouldn’t pass up.

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