Franchise Questions Prospects Should Ask Before Buying

Alloy Founder and CEO, Rick Mayo, shares the questions you should ask a franchisor if your are a potential franchisee.

You’ve found a franchise opportunity you’re excited about. It seems like the perfect fit for your goals, and you can’t wait to get started.

But wait – not so fast.

Before you make that franchise investment, you’ve got to do your due diligence. Asking a few simple franchise questions now will help ensure you’re making an informed decision that will pay off in the years to come.

In this post, we’ll provide an in-depth list of questions all franchise prospects should ask franchisors before they decide to buy. Let’s dive in.

7 Top Franchise Questions Prospects Should Ask About The Franchise Opportunity

Whether you’re an experienced franchise owner or just stepping foot into the industry for the first time, these simple questions will help you find the right opportunity:

1. How do you choose franchisees?

There’s a lot of talk about choosing the right franchise for you. While that’s important, it’s also critical to keep in mind that franchisors are choosing franchisees as well.

Before you sign on the dotted line, ask your franchisor about the criteria they look for in new franchisees. What personality traits do they seek? How many new franchisees do they bring on each year? What do their most successful franchisees have in common? Asking these questions helps you see if you’re a cultural fit for the company and its founders.

2. What is the background of the franchise?

Do you know the origin story of the franchise company? How did it get started? What are the backgrounds of the executives? What’s the company’s mission statement, and what do their future revenue projections look like? While these may seem like granular bits of information, they’re very important things to keep in mind as you work to find the perfect franchise match.

3. What’s the initial investment?

Today, the average initial startup cost for a new franchise ranges from a few thousand to millions of dollars.

Before you sign on the dotted line, it’s important to figure out how much you’ll owe in initial investments. Carefully review the Franchise Disclosure Document (FDD) and discuss start-up, marketing, and hiring costs with the franchisor.

With Alloy, for reference, the total investment necessary to begin an Alloy Facility is $194,802 to $363,633 for the stronger Alloy business model with a larger footprint and servicing more clients. This includes a $60,000 initial franchise fee. We like to be clear and upfront about this because we believe it helps franchisees be better prepared and, ultimately, become stronger business owners. There is also a smaller business model requiring less investment and smaller footprint.

4. How long before you can expect the new business to break even?

Franchises, like most new businesses, must have enough capital on-hand to cover operating costs for the first several months, or until the business begins to break even.

While it’s impossible to estimate this number down to a penny, talking with your franchisor should give you a pretty good idea of how long, on average, it takes most franchisees to make a profit.

5. How do royalties and marketing fees work?

In addition to the initial start-up cost, most franchises also charge ongoing fees. These ongoing fees include things like royalties and marketing fees, both of which are payable to the franchisor.

At Alloy, we charge a royalty fee that equals 7% of a franchise’s gross sales. We also require franchise owners to pay 7% of their revenue toward local and system-wide marketing combined. Compared to the 12-15% charged by other franchise operations, these royalty fees are quite low. These fees allow us to continue providing support services to new franchises, and to continue developing our marketing and training tools as well as new products and services.

No matter which franchise you’re considering, you should be able to find a full list of fees and requirements in the Franchise Disclosure Document.

6. What kind of support do you offer?

Even if you have experience as a small business owner, getting a new venture off the ground can be challenging. As such, it pays to work with a franchisor who will support you with the business operations and processes. In fact, we believe great support should be at the top of your list of franchise criteria.

Support A Franchisee Should Expect

Site selection
Buildout
Establishment of national supplier relationships
Books, payroll, and accounting
KPI and other reporting metrics
Operations, sales, and marketing programs
Employee training
On-site location setup
And more

At Alloy, we’ve found that supporting our new franchise owners helps them become better business owners. Our franchising coaches work with 30 franchises at a time, while the industry standard is 80. We pride ourselves on offering a comprehensive training program for each new franchisee, and encourage you not to settle for a company that provides anything less.

7. What makes this franchise unique?

Most franchises fall under a larger umbrella. Some are restaurants, for example, while others are beauty or healthcare companies. What allows each of these similar franchises to be successful, though, is how they differentiate themselves from their competition.

Before you sign on for a new franchise investment, learn about what makes it unique. At Alloy, for example, we pride ourselves on being the first personal training center that focused exclusively on providing personalized fitness training for clients. We cater to the active aging market – clients aged 50 and up – and we know how to deliver top-notch services to those clients.

Our secret to success lies in our careful attention to our target clients, and our commitment to excellence in everything we do.

Choosing the Right Franchise Opportunity for You

There are hundreds of franchise opportunities out there. The key isn’t finding one that’s up for grabs. Instead, it’s all about finding one that works for you, your goals, and your vision as a business owner. Asking the seven questions in this article is an excellent way to narrow down franchise opportunities and identify which are a good fit for you and your strengths.

While it may take more time to do your due diligence on the front end, it’s the only way to ensure you wind up in a supportive, compatible long-term franchise relationship down the road.

To learn more about the Alloy Franchise Opportunity, or what sets us apart from similar franchises, contact us today.