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3 Important Money Questions To Ask Franchisees

3 Important Money Questions To Ask Franchisees

By FranchiseKing, Guest Blogger
Published: February 17, 2015 Updated: February 17, 2015

If you’re going to risk some of your hard-earned money and buy a franchise business, you’re going to want to know how much money you’ll potentially make as a franchise owner. I’m going to show you how to do it.

Who to ask

The best place to go for answers to your money questions – the franchisees. They’re the ones who have already risked their money and are actively running their franchise businesses. Makes sense, right?

Franchisees are your best source of information. Just make sure you’re organized when you contact them with questions. They’re busy people. They’re trying to run their businesses.

Below, you’ll find 3 money areas to focus on as you do your research into the franchise of your dreams.

1.  Breaking Even

In franchising, break-even refers to the point at which the franchise business generates enough operating revenue to cover monthly operating expenses and start paying back the initial investment. The faster a business can get to break-even, the faster it can get to profitability – and maybe even expansion*.

The first thing you’re going to want to find out as it relates to money is this: How long does it take to break even?

You need to find out how fast break even happens...on average.

One of the reasons I recommend calling 10-15 current franchisees (and a couple of former franchisees) is to get averages. The goal is to talk with a mix very successful franchisees, fairly successful franchisees and a few marginally successful ones.

For example, maybe one or two franchisees broke even in only 10 months, 8 of them got to break-even in 14 months, and it took 20 months for one of the franchisees you contacted. Figure out the average and use that number when you put together your business plan.

2.  Expenses

You’re going to want to know how much it costs to keep the franchise business opportunity you’re interested in up and running. Business expenses aren’t something you’re going to want to estimate. And, the great thing about a franchise is the fact that you don’t have to. The information is there. You just have to ask.

When you’re on the phone with franchisees, ask them about the following business expenses:

  • State and local business licenses/permits
  • Inventory
  • Technology
  • Payroll
  • Marketing/advertising
  • Monthly lease costs
  • Loan interest costs
  • Taxes

Try to get a breakdown from the franchisees. Some of my clients have told me franchisees will sometimes send over their financial statements so they could see everything in black and white. If you’re able to get access to their financial statements, great. If not, ask the franchisees for as much information as possible. If you talk to enough of them, you should be able to get the figures.

3.  Profit

Profit is not the legitimate purpose of business. The legitimate purpose of business is to provide a product or service that people need and do it so well that it's profitable.” – James Rouse, American real estate pioneer, developer, and urban planner

Great words, for sure. If you read the quote two or three times, it really makes sense. When you’re investigating franchises, make sure you’ll be providing a product or service that people do need. Ask the franchisees if the products or services really are good.

So, how much can you make as a franchisee?

If you ask that question of the franchisees you contact in the wrong way, or at the wrong time, you may not get an answer.

The wrong way: “How much do you make every year?”

The wrong time: During the first 10 minutes of your call.

Here’s the right way to ask the “How much can I make as a franchisee” question. (I borrowed a portion of the following few sentences from an article I wrote a while back for my own blog. And, 1-800-Flipper, the name of the franchise in my example, is not a real franchise business opportunity.)

Martha, The Future Franchisee:Hi Jim. Martha here. I’m thinking about becoming a fellow franchise owner of 1-800-Flipper, and was hoping to ask you a few questions to see if maybe I would be a good franchise owner for the concept. Is this a good time?”

Jim, The Franchisee: “Sure. Fire away.

Martha:How did you end up becoming interested in 1-800-Flipper?”

Martha:What is your business background?”

Martha:Are you happy with your choice in the franchise that you now own?”

Etc. Etc.

Do you notice what’s missing? The thing that’s missing is any mention of money…of profit.

There’s no money question being posed yet because it’s way too early. I want you to get to know the franchisees you call. The way to do that is by asking them several easy questions first. Then…

Arrange a second phone call.

Martha: “Hi Jim, it’s Martha calling back as promised. Is this still a good time?”

Jim: “Sure, Martha. Were you able to talk with some more franchise owners since out last call?”

Martha: “Yes, I’m getting a lot of great information!”

Jim: “Fantastic. What other questions can I answer for you?”

(At this point, Martha asks a couple more general questions about Jim’s franchise business.)

Then, she asks the money question…the profit question.

Martha:Jim, if one were to buy a franchise of 1-800-Flipper, how much could one expect to make in the first, and second year?”

Did you notice how Martha worded the question?

Look again.

She asked the “How much can I make” question in the third person. She didn’t really ask “Jim.” And, since she used the third person, she really didn’t ask for herself, either. Using the word “one,” makes it less threatening for the franchisee.

The franchisees you’re calling will be way more open to answering the question about profit if you ask them in the way I just suggested. Do this enough and you’ll get your answer. You’ll find out how much you’ll make (approximately) as a franchise owner.

That’s the goal, isn’t it?

*Non U.S. Government link

About the Author:

Joel Libava

Guest Blogger

The Franchise King®, Joel Libava, is the author of Become a Franchise Owner! and recently launched Franchise Business University.