Your First Franchise: What to Ask Before You Sign

Buying a franchise is buying a relationship

A franchise agreement often runs ten years or more. In that time, the franchisor will set your menu or service list, approve your suppliers, collect a share of your sales and decide whether you can renew or sell. The questions you ask before you sign are the best protection you will ever have.

Many franchise sales conversations are friendly and fast-moving. That is by design. Slow it down.

Questions for the franchisor

Ask these in writing, and keep the answers with your copy of the FDD.

• How many units have opened, closed and transferred in the last three years, and why did they close?
• What does a typical location earn in its first, second and third years, according to Item 19?
• How is my territory defined, and can you or another franchisee sell into it?
• What exactly does training include, and who pays for travel?
• What changes have been made to the franchise agreement in the last two years?
• What happens if I need to sell or close early?

Questions for current owners

Franchisees listed in Item 20 are your best source of real-world information. Reach out to a mix of new owners, established owners and those who have left the system.

• How long did it take you to break even?
• How accurate was the Item 7 investment estimate for you?
• How responsive is corporate when something goes wrong?
• What would you do differently if you were starting today?
• Would you buy this franchise again?

Questions for yourself

Can you afford to go a year or more without taking a salary? Are you comfortable following someone else’s system, even when you disagree with it? Does your family understand the hours involved in the first year?

Honest answers to those questions matter as much as anything in the FDD.

Before you sign

Confirm you received the FDD at least 14 days before signing or paying. Have a franchise attorney review the agreement and a CPA review your projections. And remember that listings and advertisements in this magazine are paid placements. Use them as a starting point for your research, not a substitute for it.