How a Franchise Agreement and a Franchise Disclosure Document differ
There are two documents that are of vital importance...
If you are a prospective Franchisee, part of your due diligence during the purchase of a franchise system is to research existing and former Franchisees in that system.
How do you find Franchisees?
Invest time and effort To ensure a thorough investigation of a franchise system, plan and organize how you will contact Franchisees. Set up a spreadsheet or use a notepad. Keep track of which Franchisees or locations you called and if you were able to speak to them.
Franchise Disclosure Documents Disclosure Documents will have a list of all Franchisees. Photocopy and check off each name as you call. If you get no answer, call that Franchisee back at a later date. Take the time to contact as many Franchisees as needed to get an accurate picture of the franchise system.
Search online If you do not have the Disclosure Document, use Google Maps, Yellow Pages, or search for contact information online. Call each location and ask to speak to the owner or Franchisee. If they are not there, write down their name and any additional details you receive and call back later.
What do you ask Franchisees?
It's simple. Ask a lot of questions. Examples include
- Would you invest in the franchise again?
- How many hours a week do you work?
- Are you profitable?
- Tell me about any problems have you encountered?
- Why did you pick this franchise system?
- What is your background experience?
- What is your opinion of the franchisor?
- Does the franchisor respond to your concerns?
The number one question to ask every Franchisee is:
“Would you recommend this franchise investment to a family member or friend?”
Why this question? Based on our survey results of over 12,000 Franchisees, "Would you invest in the franchise again?" was answered, on average, 22% more positively than "Would you recommend this franchise investment to a family member or friend?"
This means that a Franchisee is willing to invest into a franchise system again as they’ve worked through any challenges, and know what to expect if starting over. But, they may not want their family or friends to go through the same experiences. If the answer is different between those two questions, it calls for further investigation into the franchise system.
A franchise is one of the biggest investments of your life. Take the time to do it right and you'll be glad you did.
