Franchise opportunities are everywhere these days. According to the International Franchise Association (IFA), there are over 3,800 active franchise companies in the US today. If you’ve started talking with some of the franchise company representatives, you’ve probably heard a ton of great stories of successful franchises, of how their exclusive systems virtually assure your success. But how do you know for sure? While the company rep may seem legitimate, if you buy their franchise you’ll be expected to put down a sizeable amount of your money and then spend countless hours learning how to be a success by implementing their systems. Who can you trust to give you the real inside info you need to make an informed decision?
Here’s a great tip: although there are plenty of honest company reps and franchise brokers who are truthful and genuinely interested in your future success, don’t forget that they are paid by the franchisor to get you to sign a franchise agreement. This inherently puts them at odds with your goal of getting unfiltered information about your target franchise.
The good news is, franchisors are required by the Federal Trade Commission to provide you with a Franchise Disclosure Document (FDD). The FDD is required to contain all relevant information about the franchise, including the recent background on all key management, financial info, and --- drumroll please --- a list of all current and most recent franchisees. And this, my friend, is your doorway to a world of truth about the franchise. Who are the key management team, and can you talk to them? If the key management team are very successful in the franchising world, take the time to ask them why they work within this particular franchise system.
While analyzing any FDD is somewhat of an art form in itself, franchisees can provide a wealth of information and opinions about the franchise company, the industry, and how to be either successful or unsuccessful.
Your task is to call them - some may be overseas - depending on the size of the franchise, as part of your due diligence. Here are a few guidelines to help you get the most out of your contact with franchisees:
Firstly, don’t expect them to return calls to you.
You aren’t putting any money in their pockets – they’re doing you a favor, although they probably asked others to do them the same favor when they were investigating the franchise. Respect their time. Ask them to identify a good time to spend a few minutes with you and go out of your way to make it as convenient as possible for them. In order to get the most comprehensive and honest answers from existing franchisees, assure them at the beginning of the call that anything they say will be kept in confidence and keep your word on this. If it’s shared in confidence, keep it confidential. Have your questions ready at the beginning of the conversation, know where you are heading, and don’t let the call take more than an agreed amount of time.
Some of the questions to use would be:
- How long has the Franchise system been running? (We recommend if the franchise business has not been trading at least 10 years, find one that has).
- When did you start your business?
- How was the training you received? Did it prepare you to hit the ground running?
- How would you characterize the support from the franchisor in the following areas? Marketing, ongoing coaching, IT and internal operational systems.
- How do you find qualified employees, retain them, satisfy customers who want instant results, get enough leads, etc.
- Please give me a feel for how you ramped up from a sales revenue perspective? (I.e. $10,000 your first month $20,000 your second, etc.)
- How much revenue do you need to generate in a month to break even? How much would it take for you to make your investment back?
- What has turned out different than what you expected, or different from what the materials you received from the franchisor prior to signing your Franchise Agreement?
- If you had it to do over again, what would you do differently in the beginning to be more effective?
- Would you recommend this opportunity to others if they were a good fit?
- Read about the company’s vision, their mission statement and most importantly their values. Do they match up to what yours are. If so, talk seriously to these people.
The following statement won’t work in terms of finding out income information: “Hi, I’m John Jones, looking into the ABC Franchise. Would you mind telling me how much money you’re making?” Try this instead. After warming up the conversation for a few minutes, ask them if they had any income expectations when they went into the franchise, what were those expectations, and then ask them if those expectations are being met.
Most franchisees want the system to grow, only not in their own backyard. Be suspicious of negative information you get from local franchisees that know you are looking to open in their general area, as they may not want you as their perceived competition. There’s plenty of business to go around or else the franchise company would not be offering another franchise in the area and having multiple franchises in an area can actually help all of the franchisees, not just a new one. However in our vast experience, not all existing franchisees are enlightened in this regard.
Most franchise prospects call franchisees at random, hoping to find the ones that are not doing well, as if that were the way to ferret out “the truth”. This isn’t the best method! Talk to various franchisees that are doing well, and ask them what it takes to be successful with that franchise. If you bring to the table those required attributes, and a desire to do the things you must do to be successful, then maybe it’ll be an excellent franchise for you. As to those who are not doing well, consider that they may be a fish out of water. Remember, compare yourself to the franchisees who are doing well. If you feel you are like them, you may have a winner! If you feel you are more similar to the ones who are struggling, please take our advice right now, walk away, that particular opportunity will not be for you.
Keep in mind that some franchisees just don’t want to spend time with you discussing the franchise. This is not a reflection on the franchise. Some people are just not helpful; others don’t want to take the time with a conversation that does not directly improve their income, or they’re just really busy. Move on to another franchisee, and disregard the contact. If the franchisor has mostly international franchisees and is just starting to expand in the US, ask your company rep for a list of emails and assistance to set up a Skype call with some of the franchisees. Sometimes, getting to speak with someone face-to-face (sort of) can really get the communication flowing. Finally, regarding comments from franchisees, never forget the adage, “Opinions are like belly buttons; everybody has one.”
TAKE GOOD NOTES and compile this into a dossier of actual facts. Most franchisees succeed, but some succeed much more than others. It’s these people within the franchise system you need to talk to and not the ones failing.