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Top 5 Tips When Buying a Franchise – No. 1 – Ask Awkward Questions

Prospect Franchisees must feel comfortable asking ‘awkward’ questions. For example, ensure you ask about previous failures that the Franchisor has had in the network. Understand why and establish whether these were reasons down to the Franchisee or lack of support, training etc. on the part of the Franchisor.

Discuss the franchise agreement renewal situation. A discussion with your solicitors early on should establish the Franchisors procedure. For instance, Minster allows ongoing automatic renewals without limit. Others will limit the number of renewals and others will not permit renewal without further payment.

Ask the Franchisor about their income streams. Businesses like Minster make their money directly from the turnover of Franchisees. Ask about other compulsory purchases such as materials, add-on benefits and services, which in some cases have to be purchased through the Franchisor’s designated suppliers. If this is the case, establish what the Franchisor makes – this should be transparent.

Establish whether the business you're investing in is a real business, in that when you come to retire or leave, there’s a business to sell. This can be discovered quickly by asking the Franchisor for examples of existing businesses for sale to see exactly what is available. Understanding the valuation metrics that impact on sales value will help you focus in building a valuable business for when you retire.

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