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Five Due Diligence Questions That Are Worth Asking Before You Buy That Franchise

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Five Due Diligence Questions That Are Worth Asking Before You Buy That Franchise

By FranchiseKing, Guest Blogger
Published: March 1, 2012 Updated: January 3, 2013

Before you write out a check for $30,000 (the average amount of the upfront franchise fee), it’s important to ask lots of questions.

Some are questions that you can only ask yourself; they’re the ones that have to do with courage. I really can’t help you with those.

But, I can help you learn which ones you need to ask the franchisees when you’re calling them to learn more about the opportunity.

The Five 

Let’s say that you’ve landed on a franchise business opportunity that you feel is “The One.” You’ve done some preliminary research and have learned that, as far as you can tell, it’s a viable business. Great! Now, let’s find out if the current franchise owners, the franchisees, feel that way, too.

Ask them these important questions:

1.  When you were doing your due diligence, did you discover any competitors to the franchise you now own?

Asking this question will help you find out who the current competitors are. You may even learn of others that you may have missed.

2.   How are you dealing with your competitors?

Are the competitors in the marketplace worthy? In other words, are the franchisees that you’re talking to facing stiff competition? Are you about to enter an extremely crowded market, or is there room for you to do business, too?

3.   How long did it take for you to break even?

The franchisee on the other end of the line may not be willing to share this information, but it’s worth it to ask this important question. You really need to know when you can expect your revenue to pay for your business expenses. That’s because after you break even, you can start to anticipate some profit…maybe not immediately, but at least you’ll know that there is light at the end of the tunnel.

4.   How much can I make?

This crucial question needs to be asked correctly, or you’ll end up upsetting the franchisee, and your call may end shortly thereafter.

And, please don’t to ask this question too early in the conversation. When it comes to money and earnings, you never know how the franchisee will react.

Here’s how to ask the money question.*

5.  "If I were a member of your family, would you recommend this franchise?"

I promise that no one has ever asked the franchisee this question.

As bizarre as this question may sound, and as awkward as you may feel asking it, the answer that the franchisees give to it may reveal a lot about the opportunity. This question could turn out to be a lot more important than it seems to be on the surface.

Before you buy a franchise, make sure that you spend a lot of time on the phone with current franchise owners of the franchise that you’re thinking of buying. Believe it or not, lots of people don’t do this.

Don’t be like them. Do your homework. That way, you’ll know what to expect when you finally do become a franchise owner.  

 

* Non-US Government website  

 

 

About the Author:

Joel Libava

Guest Blogger

The Franchise King®, Joel Libava, is the author of Become a Franchise Owner! and is a franchise ownership advisor. He shows people how to carefully choose and properly research franchises.   

Comments:

Being unique and furfulling the needs of your customers properly should put your business over the edge and your competitors. Some businesses are too busy looking at their competition and not their own brand and customers.
I agree with you, but others have a lot of comment, even if have no idea ...
Nice tips in the article. Well, I agree that in the hard economy we have to be careful with every decision we make. Balance and good planning is the key!
In an economy with continuing fluctuations, it can be difficult to decide how to import revenue. As people we are always looking for the next best way to make money. It's always the same story at the begining but all the information here can help to build a better one.

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