When it comes to buying a franchise, you can never ask too many questions. The franchise opportunity needs to be right for you, so you’ll need to be confident that it’s worth the risk, the potential returns are worth the hard work and you’re passionate about the business. Once you’ve narrowed down your options, it’s time for due diligence. Below is a due diligence checklist of next steps and questions to help make your decision.
Step 1: Dig Into the FDD
The Franchise Disclosure Document (FDD) is a wealth of information for prospective franchise owners. The Federal Trade Commission requires all franchisors to provide a copy of their current FDD at least 14 days prior to the franchise sale. However, it’s in your interest to use it during your due diligence to obtain information about costs and fees, legal issues, turnover rates, and other important details.
FDD Checklist Questions:
- What are the franchise and royalty fees?
- What is the total cost of getting a new franchise started?
- Are there ongoing fees, such as for advertising?
- What initial training and ongoing support is provided?
- When can you expect to break even?
- What are the renewal terms?
- What is the failure rate? And the turnover rate?
- What are your transfer and termination rights?
- Are there dispute resolution provisions?
- Is there a history of litigation?
Step 2: Talk with the Franchisor
When speaking with the franchisor, you’re going to want to verify a lot of the information in the FDD, understanding the strategy and goals for growing the franchise. Meet with the CEO and corporate staff to understand their roles and experience.
Franchisor Checklist Questions:
- What support do you provide beyond the initial training?
- What is the geographic market?
- What is the communication approach and how are disagreements handled?
- How are you staying ahead of the competition?
- Where do you want to be in one year? Five years?
- How has the business performed during an economic downturn?
As you’re speaking with the franchisor, listen to your gut. You should feel confident in how they’ve handled situations and helped others build a successful business. The conversation should be “no pressure” and gauge how eager you are to work with the staff.
Step 3: Interview Current and Former Franchise Owners
Franchise owners were once in your same position, so they are usually happy to provide feedback and advice. Names and contact information of current and former franchise owners are listed in the FDD. An in-person meeting at a franchise location is ideal as more questions will arise based on observations. Ask them any remaining questions you have and make sure to get details to help make your decision.
Franchise Owner Checklist Questions:
- Are you happy with the training and support provided by the franchisor?
- How long did it take you to become profitable? Was the income what you expected?
- What do you get for the additional fees?
- How many hours were you working each week in your first year, and subsequent years?
- How is the work/life balance? How has it impacted your personal life/family?
- Is there anything you wish you knew before making the decision?
- What made you select this franchise over the other options?
- What were your challenges and how did the franchisor help you overcome them?
- What are your interactions/relationships like with other franchise owners?
- Former franchise owners: Why do you no longer own the franchise? How hard was it to leave?
- Knowing what you know today, would you do it again?
Step 4: Determine What’s Going to Work for You
Even if the results are positive and the franchise checks out, the decision to invest also has to feel right. Here are some additional questions to ask yourself when assessing if an opportunity looks good on paper and makes sense for you.
- Are you passionate about what you’ll be selling?
- Is this business good for where you are in life right now, and can you achieve work/life balance?
- Are you willing to follow a model and not having as much control over day-to-day operations?
- Were there any red flags during your conversations, or items that stood out that require follow-up?
- Do you have enough funds in reserves until you start making a profit?
Is BirthdayPak the Right Fit for You?
BirthdayPak isn’t right for everyone, and we take pride in thoroughly vetting our franchise owners to make sure it’s a great fit for both us and you. If you’re new to BirthdayPak, download our free franchise report and learn more about BirthdayPak’s unique concept. Get to know us, do the due diligence and then decide for yourself. You can also schedule a call or call 1-888-206-0083.