5 Questions to Ask Before Franchising Your Business

Thinking of expanding? Be sure to ask your prospective partner these questions before you take the dive.
October 03, 2012

You’ve worked hard to grow your business and now you’ve decided that franchising is the best method of expansion. So how can you find the right company to take you through the franchising process? As a franchise developer who’s helped companies all over the United States to expand their businesses successfully, here are five  questions I recommend you ask when interviewing prospective companies who offer these services. In fact, you might want to keep these in mind when hiring anyone to help you with an important business function.  

1. How do you charge for your service? Some companies may ask you for a percentage of your business or a percentage of your future franchise sales and/or royalties. If this is the case then turn around and run. Other companies may charge a very large fee upfront before even starting the process with you or their fees may be vague.

The ideal company will charge a reasonable fee and make it very clear as to what their services entail. Some important questions to ask when it comes to fees include:

  • Are your fees comprehensive or a la carte? Be careful you are not left high and dry and in need of more help.

  • What exactly are the deliverables for the fees you charge?

  • Do your fees include the cost of attorneys and CPAs?

  • Do you offer different payment options?

Have a clear understanding as to what you will receive so there are no surprises later.

2. Does your company focus only on franchise development or does it also sell franchises? Be careful—sometimes companies call themselves “franchise advisors,” “franchise consultants” or “franchise brokers.” You want to stay away from these and work with only a franchise developer. It’s like the difference between hiring a real estate agent to sell your house and hiring a general contractor to build a house for you. In most cases the real estate agent does not have the skills to build a house. However, they know how to present and sell the house to buyers. You may find a few companies out there that will offer to franchise your business and claim that they will also sell your franchises through a broker network when your franchising process is done. A company that develops franchises and also sells franchises presents a conflict of interest and may suggest other motives that are not in your best interest.

3. Can you tell me about some of your clients? Have you helped them franchise from start to finish? Do they have testimonials from clients? If they don’t list any clients, it's a red flag. Flashing a bunch of logos does not mean much if you find out later that those businesses were not really clients that they fully franchised. Perform your due diligence and ensure that they actually franchised the businesses they represent and aren’t just consulting with them or selling franchises for them.

4. Will all of the franchise documents be prepared in-house by your company? In order to franchise you must have a set of Franchise Disclosure Documents (FDD) that complies with Federal Trade Commission (FTC) and state guidelines. Does the company you are talking with have experience preparing such documents or do they outsource this work? Some companies will use a template to create your FDD, which means your business is forced to fit into an existing mold. Every business is different and unique therefore your documents should be a reflection of your business; not squeezed into a generic format.

5. What is the track record of your company? Whenever interviewing any company to perform a service for you, you should investigate their track record. Ask them specifically:                 

  • What is the success rate of your Franchise Disclosure Documents being approved in different states?

  • Has your company ever been involved in litigation? If so, then investigate it further to determine if such actions question their integrity and credibility.

  • How many businesses has your company franchised from start to finish last year and in previous years?

Find out if they list a physical address for their company, and then check to see how they’re rated with the Better Business Bureau. Most important, invest some time to determine if their clients are happy with the services rendered. If they can’t supply you with the names of any former clients, then you might want to reconsider.

The most important part of any relationship is trust and you really need to be able to trust the company that you choose to franchise your business. Invest the time to engage in conversation and really get to know the person with whom you will be working to get this completed. Independently verify what each company says to you. You may be surprised as to what you find.

OPEN Cardmember David Waldman is the founder of The Franchise Maker® which provides comprehensive franchise development services to business owners who wish to franchise their business nationwide. The Franchise Maker® is recognized in the industry for making the process to franchise Easy, Fun and Affordable.

Photo: Getty Images