10 Most Important Questions to Ask Before Buying a Franchise
Twenty-seven million Americans are starting or running new businesses. Entrepreneurs of color, and black women, in particular, are starting new small businesses at rates outpacing other groups. Yet, many people are afraid to step out of their comfort zone to become their own boss—which is why many look to franchising. Franchising provides an opportunity to own a business in any field—whether you have experience in that field or not—with an established support system already in place. However, franchising is not something to jump into, there are important questions to ask before buying a franchise
For black Americans, franchising is rapidly becoming a way to achieve business ownership. A study from the U.S. Census Bureau’s Survey of Business Owners revealed astounding growth in black franchise ownership. That data showed 40,588 businesses were operated as franchises for all or part of their businesses by blacks in 2012, up from just 15,087 as franchises run by blacks in 2007.
The new data is significant because it shows how franchising ownership for blacks, minorities, and women has evolved and dramatically changed over the years. For years, African Americans have operated and continue to run restaurant and cleaning brands.
Yet in recent years, blacks have become owners in a broad spectrum of franchises. They include Always Best Care Senior Services, FastSigns, Handyman Matters, Jazzercise, PostNet, and Meineke Car Care Center, to name just a few.
For the aspirational franchise owner, here are the top questions you must ask a franchisor before deciding if the franchise opportunity is ideal for you:
10 Most Important Questions to Ask Before Buying a Franchise
1. What are my upfront costs and what’s included in the fee?
2. What other fees should I plan on paying?
You may be required to lease property or equipment. You may have to pay vendors or your franchisor for products and services. Those numbers must be included in your own equations when you’re trying to figure out if a franchise deal makes sense.
3. How is the franchisor making money?
Franchisors may make money by owning their own establishments, by providing services to franchisors, by simply collecting royalty payment or by some other combination. You want to know where the franchisor’s own interests lie.
4. What restrictions do I have on suppliers and does the franchisor get discounts from buying in bulk?
Are you going to be required to purchase certain goods or services from particular vendors and/or from the franchisor? If certain purchases are required, are they going to cost you more or less than you would otherwise have to pay if there were no restriction on where you could buy them?
5. What kind of regional protection am I getting?
Do you have guarantees that the franchisor isn’t going to sell other franchises or open up its own outlets in your geographic area? If so, how long are those guarantees good for?
6. What kind of empire-building opportunities do I have?
Are there additional territories close to you? Do you get first dibs on new franchises in or near the same area as your first franchise? Some of the most successful franchisees are those who own multiple outlets in the same area and are able to develop through economies of scale.
7. What kind of training and support do I receive?
A good franchise will include solid training and ongoing follow up / mentoring. Franchisors know their success is based on your success, so they should be proactive in teaching you the business right from the start and sharing with you what they learn for the lifetime that you are in business.
8. What is the difference between owners who are at the top, middle, and at the bottom of the franchise?
You want to hear from both the franchisor and franchisees about what they think makes a top producer.
9. How many franchisees sell out in a year?
A franchisee that gets out of the business by selling to someone else or closing at the end of the Agreement term can be successful. You still need some idea of the turnover rate of franchisees and what is normal for the industry.
10. What are the terms of me selling my franchise?
What if you got sick, or had to move quickly for family reasons? Can you sell to anyone, or do you have to deal with the franchisor? Would the company charge you something to sell your franchise or otherwise restrict your ability to pull out of the business?
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—Jeffrey McKinney contributed to this report.
Black Enterprise Contributors Network
