By Admin November 30, 2023 Category: Franchise Tags: Buying A Franchise california business law chase law group chase law manhattan beach deann chase franchise attorney Franchise Decisions Franchise Inquiries Franchise Insights Informed Franchisee los angeles business attorney small business law Smart Franchise Choices Smart Franchise Investing
There are many steps that should be taken before buying a franchise. The most-important is to read the entire Franchise Disclosure Document or “FDD” (that lengthy document that the franchisor provided to you, probably by emailing a .pdf copy to you). If you’re serious about this franchise, you should also have a lawyer who is experienced in franchising review the FDD; there are lots of issues an experienced franchise lawyer can spot that you might miss.
After you have read the FDD, it is very important that you call franchisees (in a small system, you may be able to call all of the franchisees)—including the franchisees who have left recently. You will find a list of franchisees (and of franchisees who left during the last year) in the FDD—either in Item 20 of the FDD or in an exhibit to the FDD.
Try to speak to as many current and former franchisees as possible. Best practices are to prepare a list of 8 to 10 questions that you would like to have answers to. Of those questions, try to ask 2 or 3 “core” questions to each person. In addition to those core questions, you can ask another 1 or 2 questions per person as you have time (and as the person you are speaking to seems willing). That should give you a fair idea of what the franchisees think.
You do not need the permission of the franchisor to call the franchisees or former franchisees listed in the FDD—this is your right, and the reason you are provided the names and numbers in the FDD. While there is no guarantee that any particular franchisee will speak to you, there is also something to be learned if every franchisee you call refuses to speak to you. These franchisees and former franchisees should be able to answer your questions about (a) the support and training that the franchisor offers, (b) the costs to open the franchise, (c) the time it takes to break even (make a profit), and (d) many other answers to the questions you will have.
Some suggestions for potential questions to ask franchisees (and former franchisees) are:
- Most important question: Would you buy this franchise again? Why or why not? (Alternatively: If your best friend was considering buying this franchise, what would you tell them?)
- Do you think that the costs to open the business were consistent with the figures in Item 7 of the FDD? If not, what did you pay?
- Did the training program and on-site support make you feel comfortable about operating your unit on your own in the beginning? Did you think that the training was adequate for your level of experience?
- How long have you been open? How long after you opened did it take you to “break even” for the first time? Since then, have you been profitable every month?
- Considering the size of your investment, are you satisfied with the amount of money you are making?
- How many hours do you spend at the business? How does that compare to your expectations?
- What do you like best about working in this business? What do you like least about working in this business?
- What do you wish you had asked or known before you bought the franchise?
- What type of on-going support do you get from the franchisor? Do you feel it is enough or too much?
- Do you speak often to other franchisees? Do you find them helpful/supportive?
- Do you know any franchisees who have left the system? Do you know any that are considering leaving? If so, why did they leave (or why are they considering leaving)?
Additional questions for former franchisees:
- Do you regret that you got out of the business?
- What have you done since you left the franchise system?
Don’t feel limited by these questions, however. If there are other things that matter to you, be sure to ask them. Only after you have spoken with a number of franchisees should you go forward with your purchase.
If you would like assistance with buying a franchise, feel free to call the lawyers at Chase Law Group at 310.545.7700 to set up a consultation. We would be happy to help you!