Franchisees and franchisors should be collaborators. A relationship should benefit you both financially, and you should think of yourself on equal footing.
Unfortunately, however, it doesn’t always end up that way. There are a few minefields that potential franchisees may encounter during the sales process. By interacting smartly with the franchisor, you’ll be better able to understand the opportunity, assess the business you’re getting into, and determine whether it’s the right fit for you.
This is what I do for a living: As the CEO of iFranchise Group, my team of consultants helps emerging and established franchisors grow. We see the insides of these businesses, and we know what makes the best ones work — and the worst ones fail.
In this article, I’ll walk you, the potential franchise buyer, through the entire process of interacting with a franchisor. Let’s assume you’ve already done some basic due diligence: You’ve read the brand’s Franchise Disclosure Document (FDD), interacted with its sales or business development team, and talked to other franchisees. Now it’s time to get in deeper — and we’ll start by evaluating how the franchise has been selling to you.
Image Credit: Pete Reynolds
The ‘award’ of a franchise
The best franchisors “award” franchises. They are serious about their commitment to quality, and only the best franchise candidates will qualify. Unfortunately, the worst franchisors hide behind the word and use it as a sales tool.
Once you start your franchise search, you will almost certainly hear that a franchisor will “award” a limited number of franchises in your territory. That word connotes a highly selective process in which a franchise territory is granted to the winners of a long line of prospective candidates. In fact, the best franchisors do take selecting franchisees very seriously. They recognize that the success of their organization is founded on the bedrock of franchisee success. They realize that the single most important factor in the success of any franchise system is the strength of the franchisees that are brought into the system. Successful franchisees generate more income, and therefore pay more royalties. They require less support and often invest in additional franchise locations. They do not litigate. And they validate well with new candidates interested in the franchise system.
While the best franchisors are truly selective, somewhere along the line, less selective franchisors hijacked the jargon, using words like “award” to create a sense of urgency in their buyers. Instead of using it as a formula for success, they just use it to help close the sale. The end result can be that you are so tied up trying to win the approval of the franchise selection committee that you may rush unwisely into an investment. Thus, one of the most important rules of the franchise sales process is: “Always remember — they’re salespeople.”
Today, a typical franchise development officer (aka franchise salesperson) with a seven-to-10-year track record of success makes a base salary of $85,000 to $100,000, plus a commission of perhaps $5,000 per sale. Good franchise salespeople can easily double their base salary every year on commissions. This can motivate overzealous sales tactics.
Of course, there are some companies that really do believe in the concept of awarding a franchise. One major mall-based food retailer, which launched its franchise program in 1989 and awarded about 650 franchises in its first decade of franchising, reportedly decided that in order to discourage overeager salespeople, it would compensate its development staff on straight salary and not pay commissions. Other companies have incorporated the franchisee’s long-term performance into the salesperson’s compensation. But most companies, and most salespeople, are still largely commission-oriented.
Franchise salespeople are paid to present a franchise opportunity in the best light, so you need to be careful that you are not the victim of a particularly skillful salesperson. Choose the franchise you want — not the franchise someone else wants you to buy.
Related: For Franchisees to Succeed, They Need This Critical Support From Franchise Owners
Trust, but verify
The vast majority of franchise development officers, despite their financial motivations to sell, are honest and reputable. They do not want to sell you a franchise that will fail, since that’s also bad for the franchisor they work for. And, truth be told, when it comes to those few disreputable franchise salespeople, the majority of well-intentioned franchise salespeople are among their loudest critics. After all, the salespeople who play fast and loose with the rules hurt everyone’s reputations — and they can take sales away from franchises where the prospect might really be a good fit.
As a franchise buyer, it’s sometimes difficult to discern the sales-driven organizations from those that are truly selective. While most are honest, it is imperative that you protect yourself from those who care only for their commissions — not your success.
Please do not take this as a license to be adversarial in the sales process. One of the things a good franchisor is trying to ascertain is how well you get along with their team — and people in general. If you treat your franchise salesperson like a used-car dealer, you will likely be shown the door.
That said, caution is vital to a successful negotiation, so be on the lookout for anything that seems strange in the sales process. Specifically, here are some red flags that should make you very concerned:
→ Telling you something that is inconsistent with the franchisor’s FDD. The more inconsistent it is, the more likely it is that the alteration was deliberate.
→ Implying you will do better financially than the numbers in the FDD. There may, of course, be legitimate reasons they might expect you to generate better numbers (a newly designed prototype operation or a market in which the franchisor already has a strong presence, for example), but if they cannot explain why you will do better (or even better, show you a subset of numbers demonstrating why), you should exercise a great deal of caution.
→ Implying that you will or should achieve the median numbers (or any numbers, for that matter) in the franchisor’s Financial Performance Representation (FPR) in Item 19, which is almost always strictly historical and is not supposed to be a projection.
→ Steering you to talk to particular franchisees as you go through your validation process. If there is a good reason to speak to those franchisees (they are all in your chosen market, they are operating a new prototype, they all started in the past two years), that might be reasonable. Otherwise, exercise caution against speaking solely with cherry- picked franchisees.
→ Any high-pressure tactics designed to get you to close should be viewed with a healthy degree of skepticism. Implying that a fee structure may be changing soon or that a territory may soon be sold to someone else (even if true) is designed to rush your decision.
→ An overabundance of “puffery.” Puffery in the sales process often involves the use of unprovable superlatives and opinions rather than objective facts. If your franchisor claims to provide “the best support” or have “the happiest franchisees,” those claims can be hard to refute.
→ How evasive is the franchisor salesperson when answering your questions? Judge this carefully. While your first reaction might be to perceive evasiveness as deceptive, it may just be that the franchisor is constrained by laws and/or best practices as to how they can answer the question you are asking. If a franchisor is avoiding your question, ask yourself if there might be a legitimate reason for the indirect answer you are receiving.
If you find yourself confronted by these tactics, an alarm should go off in your head — but don’t stop your investigation. This might just be a new salesperson who has not been properly trained, or the franchisor may not know how the franchise is being represented. But the more prevalent these tactics are within the organization, the more likely this is an institutional characteristic.
Remember: As a franchisee, you are only as good as the franchise system you belong to. If you join a system that employs high-pressure salespeople, it is likely they have recruited a number of franchisees who are not well-qualified.
Underqualified candidates are more likely to fail. A lack of capital may cause them to take shortcuts relative to brand standards, causing quality at the consumer level to suffer. Failed franchisees are more likely to sue, which can cause the franchisor to go under — or at a minimum, force the franchisor to spend money to defend against this litigation, depleting resources that they could otherwise use for franchisee support. Poor validation from these franchisees will make it more difficult for the franchisor to grow in the future.
So if you feel you are dealing with a high-pressure franchise salesperson who has stepped over the line of “truth-stretching” into pure fabrication, run for the hills.
Also be wary of franchisors who try a bit too hard to impress you. Maybe they send a limousine to pick you up at the airport or take you to dinner at an expensive restaurant. They may pay for your airfare to attend Discovery Day (that’s when franchisees do a detailed run-through with the brand). They wear $1,200 suits and flash their Rolex watches as they pull out their Montblanc pens to sign the contract. While there is nothing wrong with this per se, check that they don’t have their other hand in your pocket.
Don’t let these surface details keep you from looking beyond the show to the substance of the franchise opportunity and the long-term relationship you will have with the franchisor. But until you know for sure, keep your hand on your wallet.
Meeting the team
While some franchisors may wait until Discovery Day to introduce you to the team that will be providing you support, many offer you a chance to meet and interview them while you go through preliminary due diligence. The sooner you can speak to some of these people, the better, so you should avail yourself of this opportunity as soon as possible.
First, though, be sure you understand their roles and responsibilities (ask your development officer) and who they report to in the organization. That should tell you something about organizational alignment and priorities while giving you an opportunity to prepare specific questions for these meetings.
Of course, you will want to know how each of these people will provide support — either directly or indirectly — to you as a franchisee. But beyond that, you will want to understand how you will fit in with the franchisor’s mission and culture. Unlike your franchise development officer, whom you may see little of after you sign the contract, you may be entering into a relationship with some of these people that will last for decades — so be sure you like them, or at least can communicate well with them.
Remember, too, that with better franchise systems, these interviews are also about qualifying you as a franchisee. Often, these people will be asked for their opinion about your candidacy and your fit within the organization. So while you want to get your questions answered, you also want to be sure that you interview well.
Related: I Was a Franchisee And Now I’m a Franchisor. Here’s My Parting Advice to New Franchisees.
Discovery Day
The ultimate goal of everything the franchisor has done so far — the marketing brochures, the ads, the trade shows, the follow-up calls — is to get you to a face-to-face meeting, Discovery Day. This meeting, which almost always takes place at the franchisor’s headquarters, is designed to sell you on why you should become a franchisee, and, at least with good franchisors, is also designed to be sure you are a good fit for the franchisor in terms of knowledge, experience, attitude, and culture.
So how does it usually work?
You are typically invited to fly or drive in for this meeting. Most of the time, you are responsible for your own travel expenses. Usually, you are asked to bring your spouse, life partner, or potential business partners with you. You should absolutely do so, regardless of whether they receive an explicit invitation, as you will need their support not only to make the final decision, but as you move forward with your business.
While there are many variations as to how Discovery Days are conducted and the order in which things happen, they generally have the following elements:
→ Often, the franchise development officer meets you at the airport or at your hotel the night before. You may go out to dinner with the development officer and other members of the management team, so they (and you) can get a feel for how well you will mesh with the organization.
→ The following morning (or when you arrive), you are often given a tour of the franchisor’s headquarters and introduced to various people who will provide support to you as a franchisee. If you have not yet spoken to some of these people on the phone, you will probably interview with them at some point during your visit.
→ As part of this process, you may have detailed meetings with the department heads who will be supporting you. These individuals may also demonstrate some of this support (the IT person showing how information is captured and key performance indicators are measured, the real estate person detailing how sites are analyzed, etc.).
→ If the franchise has physical locations, you typically visit one or more nearby operating locations. During those visits, you may have the opportunity to learn in greater detail how the business runs and what your role might look like.
→ The franchisor likely makes a presentation about the company (often with PowerPoint slides) that will provide you with more background and an opportunity to ask questions.
→ If you have not yet reviewed the FDD with your development officer, you go through it item by item, and you’re asked if you have any questions about the contents. The franchisor uses this opportunity to sell you on making an investment in the franchise and to explain any warts you may have found.
→ You may have additional discussions about how you intend to finance and run your business.
→ You may be asked to take a personality profiling test if you have not done this previously.
→ You should have an opportunity to get answers to any final questions you may have.
At the end of the process, you are told that the award committee will review your information and make a final decision on your candidacy soon. Often, you are told that the franchisor will be considering your application, and you’ll be given a timeline for the next steps. You may be asked for a tentative commitment, assuming the franchisor is willing to move forward with your candidacy.
To prepare for Discovery Day, the franchisor should provide you with a detailed agenda of the visit in advance. Once you receive that, you should develop a list of goals and questions you’d like to address during the visit. The more prepared you are walking into Discovery Day, the more you will get out of it.
Many of the most revealing questions you should ask your franchisor will be based on a thorough reading of the FDD. If the franchisor is involved in litigation, ask about it. If the franchisor has a significant number of franchise failures, ask about them. If the franchisor has been involved in a bankruptcy — ask.
Beyond that, other questions may occur to you based on your knowledge of the franchisor, the market, and the competition. You will need to come up with more specific questions, depending on your personal and financial situation, as well as the particular franchisor you’re interested in.
Related: How Franchisees and Franchisors Can Master Their Relationship
Here are some good ones to start with:
1. Tell me about your competitors, especially those operating in my local market. How will we address them based on your market analysis?
2. What kinds of changes are on the horizon for this concept? Marketing? Operations?
3. How are you planning to respond to the competitive threat posed by current competitors? Potential competitors?
4. What is the biggest competitive threat in the marketplace? What is the biggest opportunity? (Note: Pay close attention here. If you don’t get a substantive answer, either you are being sold or you are dealing with someone who simply does not know the answer. In either case, be wary.)
5. Who is your customer at the end-user level? What is happening to this market?
6. What are you really selling? (For example, on one level, McDonald’s is selling hamburgers. But on another, it is selling quality, service, and value — delivered fast with a clean restroom.)
7. What has happened to the market over the past five years? To your market share? To your strategy? What new competitors have surfaced, and why?
8. Who are your major vendors? Do they give terms on initial inventory? What terms? What terms do they provide on ongoing purchases?
9. What are you doing to secure the best prices on products? Are you also negotiating with service and equipment vendors (e.g., insurance, office equipment, etc.)?
10. How much do you spend on research and development? How much is that as a percentage of revenue?
11. What are you trying to accomplish with your advertising? Who is your agency? Why did you choose them?
12. Are there any plans to sell the business in the next five years?
13. Where do you see the company five years from now? Are you planning any major strategic changes in the concept? Do the owners plan on eventually selling the company or passing it on to their heirs?
14. What major changes has the CEO implemented since he took over (or in the past three years)? Is this part of an overall strategy?
15. How are you attempting to differentiate yourself in the franchise marketplace?
16. Are any major changes to management planned?
17. What support do you provide to franchisees that helps them build revenues during their first six to 12 months of operation?
18. In what ways do you collect information on best practices and share them with franchisees in your system?
19. What key performance indicators (KPIs) do you share with franchisees? How is the information shared?
20. Why are you not using an FPR (assuming they aren’t)?
21. I talked to a franchisee of yours, who told me [whatever concerning or intriguing thing you heard]. How do you respond to that?
22. What is your biggest franchise disaster? Why did it occur? What has been done to prevent a reoccurrence? What is the name of the franchisee involved?
23. What is the best thing you can say about each of your competitors? What are their strengths and weaknesses?
Related: 23 Questions to Ask a Franchisor When You Meet Face to Face
Discovery Day vs. Decision Day
While it is not common practice, some franchisors have replaced Discovery Day with the term “Decision Day,” and they will try to use the site visit to close the sale. They will provide the agreements at least seven days before your visit so you can sign. They may even preface the meeting with something like, “If we are able to answer all your questions to your satisfaction, will you be ready to sign at the end of our time together?”
Franchisors figure (correctly) that by getting you to commit to a visit to their home office, you have deepened your psychological investment in the franchise and are thus more likely to buy (much like automotive dealers do when they get you to take a test drive). In fact, I heard one franchisor speak about this at an industry event some years ago; his advice was to be sure to have franchise prospects “bring their checkbook, so you can sell them while they are still in the ether.”
A Discovery Day positioned as a Decision Day is another red flag. You should be able to walk away from Discovery Day and process the information you’ve received. You should feel free to follow up with the franchisor’s team on any additional questions that may have arisen during the visit. You should never feel pressured to make a life-changing decision on the spot.
These meetings can be very exciting. And with the pressure of the salespeople and an expectation of signing, it is all too easy to get caught up in the moment. Don’t let that happen.
Related: 20 Questions Franchisees Must Ask When Interviewing a Franchisor
Choreographed site visits
If the franchise involves a physical location, the franchisor will probably suggest that you visit a nearby location to show you what their current prototype looks like, provide you more detail on how it operates, and help you better understand the role you will play on a day-to-day basis.
Look at this as a first date: For a date, you would dress up and look your best, and for this visit the franchisor will show you its best unit operating at its busiest time. If it’s a restaurant franchisor, for instance, expect that you will go around the lunch or dinner hour. The unit will be swarmed with people, all of whom will be happily buying the product you may one day sell. It will be hectic. As often as not, the unit manager will be so swamped she won’t be able to talk. And you may think (as the franchisor wants you to), What a gold mine!
While there’s nothing wrong with dressing up for a date, maintain your healthy skepticism. I was once asked to be an expert witness in a case (I declined) in which the franchisor would pass out coupons for free food redeemable on Discovery Days. Needless to say, the franchisees subjected to this trickery were not happy when the long lines they saw at units never materialized at their own locations.
So when you visit operating units, keep an open mind. If the location(s) you visit are owned and operated by the franchisor, pay particular attention to the standards they are maintaining. Take note of the following:
→ Is the location clean and well-maintained?
→ Does the quality of the staff seem high?
→ How well do they engage with customers?
→ How well do they engage with you if they are introduced during the visit?
If the franchisor doesn’t do a great job in all these areas in the locations they operate near their home office, that is cause for concern.
Related: The Role and Responsibilities of a Franchisee, Defined
The office tour
If you are visiting a larger franchise company on Discovery Day, chances are they will give you an opportunity to walk through their offices and meet their people where they work. If your franchisor has a manufacturing facility, prepare to don a hard hat as well. While you may not think so at first, the facility tour is of vital interest to you in making your franchise decision. Do not take it lightly.
As a franchisee, what you are buying is, in effect, the expertise of the people you are meeting and the culture you are observing. So ask questions. Ask to see samples of what they will be doing for you. If they are in advertising, ask to see samples of recent promotional campaigns. If they are in real estate, ask to see site packages.
Also get to know the people a little better. Ask them how long they have been with the company. If it has not been long, ask them what they were doing before. Observe what they have in their offices and how organized they seem to be. Even how they dress and how they interact with you will offer clues about their values.
It is important that you develop a personal rapport with the franchisor. After all, you will be working closely with this company — perhaps for the next 20 years or more. From that standpoint, it is not important to establish a good working relationship with the franchise salesperson — as they will, in all likelihood, be long gone before you have finished your first decade with the franchisor (or, if they are still around, will have minimal interaction with you unless you invest in another franchise). You should, however, feel the franchisor exercised good judgment in hiring and training the salesperson.
Another approach you might take is to interview some of the franchisor’s staff who were not at Discovery Day. One key person who may not be at the Discovery Day meeting is the field business consultant (or similar title), who would be your main day-to-day contact in your market once you open. If the franchisor hasn’t already suggested you speak with him or her, you should request an interview by phone or in person (assuming they live close to you). Since you would likely interact with them more closely than with anyone else on the franchisor’s team, it’s important that you feel comfortable with them and feel they have the experience and skill level to be a valuable support resource. The field business consultant likely supports between 20 and 30 franchisees in your region. When you talk to existing franchisees in the system, I highly recommend you ask them how well the field business consultant performs, and how much value he brings to helping franchisees build successful businesses.
You might also ask to talk to people on the franchisor’s marketing, training, or operations teams. Ask them what they like about the brand and what they like or don’t like about working for the franchisor.
The bottom line is that you need to feel comfortable with your franchisor, their culture, and the team they have assembled. You’ve got a long road to travel together.
Related: 3 Reasons Why Franchise Systems Are So Valuable
Be sure you know what’s being tested.
At some point during Discovery Day, you may be asked to take a personality profiling test. For years, I have been skeptical about these tests. I have seen successful franchisees come from all different walks of life, and the most successful appeared to have little in common. Most were hard workers and were willing to follow the system, but I didn’t need an elaborate profiling test to tell me that. Recently, though, I have started to feel more comfortable with these tests — though I do not always encourage their use, as it is fairly easy for people to game the system.
I learned this almost by accident when I spoke to a franchise salesperson who swore by psychological testing — but not for the reason you might think. He told me the tests didn’t mean much to him as far as potential success was concerned, but they did tell him everything he needed to know about how to sell the franchise! In essence, he was using these tests to have his prospective franchisees identify their own hot buttons. Prospects were telling the franchisor how they wanted to be sold!
Over the years, however, I’ve spoken with a number of franchisors who use profiling tools successfully as part of their franchise recruitment process. When used properly, they help a franchisor better understand the potential strengths and weaknesses of their candidates as business owners and members of a franchise system. Profiling tools are most relevant for franchise systems where the franchisee will be actively involved in day-to-day operations. They can help the franchisor (and the candidate, if the information is shared with them) identify the franchisee’s tendency toward attention to detail, leadership skills, work ethic, and other factors that could be a predictor of business success.
If you’re asked to take a profiling test, I recommend you agree to it as long as the franchisor is willing to share the results with you.
My personal ambivalence aside, I know a number of companies that swear by them. One such company, a sports-focused franchisor that I am familiar with, has on occasion eliminated candidates from contention based on test results alone, which they feel strongly has made them a better franchisor. Some of the best franchise management recruiters have used them effectively as well. Plus, there is global research that has been done and processes that have been established to aid in the profiling of franchisee candidates. Many of the consultants at the iFranchise Group swear by these tests.
So if you are asked to take a test, take it and answer it fairly. But know that while most franchisors are probably using them for legitimate purposes, at least some franchisors and franchise salespeople are using them for an edge in the sales process.
Related: The 19 Covenants of a Standard Franchise Agreement
Be careful of the meeting at a hotel.
Occasionally, you will run into a franchisor that wants to get together for Discovery Day in your hometown — maybe at a hotel or an airport lounge. While this tends to be the exception in franchising, if your franchisor offers, by all means, take them up on it. This gives you an opportunity to get to know the franchisor without investing additional time or money in travel.
Just don’t substitute this meeting for the trip to the franchisor’s home office. You absolutely must visit the franchisor’s office and meet their team before you make the final decision. Do not let the convenience of a local visit or any high-pressure sales tactic dissuade you. And if the franchisor hasn’t already encouraged this visit, that should be a concern.
There can be reasons a prospective franchisor might not want you to visit them on their turf. Perhaps business isn’t great, and they have just gone through a major layoff. Perhaps they have very little in the way of a support team to show at the moment.
Again, this is not an indictment of smaller or newer franchisors. Newer franchisors bring some significant advantages to the table. With a new franchise, you will likely have the opportunity to work with the founder of the company instead of someone with significantly less experience. The franchisor, if they are smart, will place extra emphasis on your success, as the success of early franchisees will dictate the long-term success of the franchisor. You will be able to pick the best territories — and add territories before others join the system. And as the company grows, early franchisees will often have the best seat at the table when it comes to providing input to the franchisor and the founder.
The point is not that you should only pick organizations with big teams. It’s simply that you need to know what you are buying. So be sure you kick the tires — in person — before committing to anything.
The group interview
At some point during Discovery Day, you will likely have a group meeting with people from the franchisor’s leadership team. These staff members will represent most of the departments you’ll interact with as you develop and operate your franchise.
If you received a detailed agenda before Discovery Day, it hopefully included a list of the people you’d be meeting with. With that in hand, I recommend you develop a list of questions to address with the people who are responsible for specific areas such as site location, facility design, construction, training, marketing, finance, and general franchise operations. If you bring that list into the meeting with you, you’ll be prepared to pose the right questions to the right people.
The group meeting may begin with the franchisor’s team going through a structured presentation of the franchise opportunity and the support you’d receive as a franchisee. It often covers things like:
→ the market
→ the concept
→ competitive positioning
→ the franchise organization
→ support provided to you as a franchisee
→ the process of moving forward with the franchise, should you choose to do so.
This is a fairly common approach. If you’ve not seen that presentation before, ask for a copy before you leave, so you can review it later or share it with your advisers.
Related: 4 Essential Things to Know About Franchising
Following the presentation, you’ll likely have a chance to probe deeper with the staff members in attendance. This is where your preparation will benefit you. Don’t be afraid to ask questions. This is your best opportunity to speak with the people within the franchisor’s organization who would ultimately support you as a franchise owner.
Remember that this interview is a two-way street, as both parties are sizing each other up for success. Either at this meeting or throughout the day, expect them to ask you questions to further qualify you for the franchise. Since they probably already know a lot about you professionally from speaking with you on the phone, the questions will likely be geared toward getting to know you better personally. And if you brought your spouse or significant other, they will want to involve them in the conversation as well. They may ask you where you see yourself in five years’ time. Do you plan to open additional locations? What gives you the greatest satisfaction? What is your greatest accomplishment? How would you respond in [X situation]?
The goal here is twofold. The best franchisors want to be sure you are a good fit for the organization. But they also want you to feel as if you are interviewing for a position you may not get. In some circles, it’s called the “negative sell” — making you sell the franchisor on yourself, rather than the other way around. Psychologically speaking, if they can make you feel as if you are competing for something, you are much more likely to want it.
At some point, you will probably be asked where you are in the decision-making process. They will want to cover what steps you have taken in areas like investigating your market and obtaining financing. And they may want to walk you through the FDD one more time to answer any remaining questions and uncover any lingering objections you may have.
Use the list of questions on page 142. You don’t have to ask all of your questions at Discovery Day. Some may be appropriate during the site visit. Others perhaps would be better when the salesperson is going through the FDD. And still others may be best during a follow-up phone call. But ask them. All of them. And ask any others you can think of.
Toward the end of the interview process, the franchise salesperson will want to get a preliminary commitment from you. That will often come in the form of a question, such as, “If you are approved by the committee, when do you think you’ll be ready to move forward?” You may be told that the franchisor’s application committee will be considering your application over the next several days and will provide some preliminary feedback on your candidacy. Keep in mind this preliminary commitment is just that — preliminary. You are not signing on the dotted line just yet. And, as opposed to the hard-sell Decision Day tactics you read about earlier, this is meant to gauge your level of commitment — not to make you commit on the spot.
The franchisor won’t be done with you once your in-person visit is over. With most well-functioning franchise organizations, there will be a debriefing after Discovery Day, where the people who met you will provide their input on how well you would do as a franchisee. In some organizations, a single “no” vote may be enough to jeopardize your candidacy, but in most, the business owner weighs their input and ultimately makes the decision.
Some old-school franchise salespeople may, at this point, use the application committee as an opportunity to play good cop, bad cop. By claiming to feel positive about you and your application, the salesperson (the good cop) can urge you to move fast before the bad cop (the committee) gives away your territory to another franchisee. The committee is faceless, so it gives you no one specific to dislike. It also represents a higher authority whose demands you supposedly must strive to meet. Rest assured, however, that whenever pressure is applied, it will come from the committee.
These tactics, for the most part, went out of favor about the same time as the horse and buggy, but if you encounter them, do not let them push you into a hasty or unwise decision.
Related: The Real Cost of Franchising Your Business
Evaluate information-sharing within the franchise system.
An important issue to address during Discovery Day is how well best practices are gathered and disseminated throughout the franchise system. Owning any business is a challenge, but a franchise system can lessen that challenge — if the franchisor has established good systems for collecting and sharing best practices among franchisees. The strength of the system is defined by the collective knowledge of the franchisee community. If you as a franchise owner lack access to that knowledge, the franchisor’s value proposition diminishes substantially.
In a high-functioning franchise system, the franchisor gathers franchisees’ financial data and shares the results through a web-based benchmarking platform. A franchisee should be able to log into that platform and see how his or her business compares to other franchisees by geography, age in the system, revenue volume, etc. There should also be a technology hub where franchisees can access best practices in marketing, sales, employee retention, and other key factors that help each franchise location succeed.
In your group meeting with the franchisor’s team, ask them what systems they’ve put in place to gather and share this information. Also ask whether they share their company-owned data with franchisees. If they operate corporate locations, they should share that information as well.
Related: What Is Franchisor Financing? Here’s Everything You Need to Know.
Cool off.
After a long, grueling Discovery Day, you’re finally on your way home. But you can’t relax yet. You now have the information you need to decide — or at least most of it. And you still have work to do. Your first order of business should be to document your meeting. Since you will likely be meeting with multiple franchisors, you will need to keep track of all these details. While it does not need to be lengthy, you should probably note:
→ who was present
→ when and where the meeting took place
→ what levels of support were discussed
→ what promises or commitments were made by either party
→ any information that will help you develop your financial model
In the process of documenting these conversations, you will likely come up with additional questions you will want to jot down for your next call with your development officer.
Finally, let the glow wear off. Look at some other opportunities or just take a weekend off from your search.
A cooling-off period isn’t just a good idea in the abstract; it can protect you as well. When the Federal Trade Commission originally announced the “Franchise Rule” requiring franchisors to provide prospective franchisees with key data, the regulators built in a cooling-off period to prevent fast-talking salespeople from closing unsophisticated prospects before they had finished their search. Twenty years ago, it was not uncommon to present the FDD (which was then called the Uniform Franchise Offering Circular, or UFOC) at Discovery Day, sending prospects home with detailed written information after this initial meeting. Today, with the advent of electronic disclosure, you will almost always have received the FDD prior to your visit. And if there are no changes to the franchise agreement, the mandatory 14-day waiting period may have already expired by the time you arrive.
Related: What You Really Need to Look for When Considering a Franchise
Don’t just kick the tires; take it for a spin.
Finally, try putting yourself in the role of a franchisee for a week or so and see how well the “job” suits you.
In fact, some franchisors (McDonald’s and Domino’s among them) require you to work in a franchise or corporate location before being awarded a franchise. Sort of like Navy SEAL training for franchisees, this trial run is as much about giving their franchisees a chance to ring the bell as it is about the franchisor wanting to see whether they can hack it.
Of course, most franchisors do not have this built into their sales process. But that doesn’t mean you can’t put yourself through your own version of SEAL training. Perhaps you can get a job working for a franchisee. Maybe you can’t take the time to do this, or maybe there are no units close to where you live. But if you want to get a good feel for what you are getting into, you might want to ask your franchisor if they will let you try before you buy.
If you feel you have a particularly strong rapport with a franchisee in your area, perhaps (with the franchisor’s permission) you could offer to work for a week or two for free. The franchisee gets free labor, and you get some insight as to whether you are cut out for the role.
Some franchisors may frown on this practice, perhaps fearing you are trying to obtain their intellectual property in order to compete with them. If this is the case, you might instead find ways to simulate their work environment. For example, you might spend some time at competing sites: Get there when they open and stay as long as you can every morning. In your calls with franchisees, spend time talking about what a typical day in their life is like. And talk to independents and competitors as well. Paint yourself into the picture.
Be sure you know what you are getting yourself into. A janitorial service franchise might sound like a great, low-cost business opportunity. But it may also mean you will be
working late nights and sleeping during your children’s baseball games. A bar and grill might sound like great fun, until you realize you will be open every day of the year and away from your family on most holidays.
Related: 5 Must-Do Steps to Evaluate Franchise Opportunities Like a Pro
After all that, you decide!
At this point, your research should have given you a great deal of background on the franchises you are considering. Hopefully, you also have enough insight to determine whether the business is a good fit for you.
You have ideally found one (or perhaps more than one) business that is well-suited to your talents and that you believe you would enjoy. Likewise, you have assessed the risk associated with the venture and are comfortable that you can manage it. And finally, if you have gotten this far with one or more franchisors, you believe the team they have assembled and the system they have created will work.
But before signing on the dotted line, there is still more work to do.
The acid test for your final decision must include an examination of your projected financial performance and an analysis of whether the return you anticipate from your hard work and your investment will be worth the risk you will incur. If you’ve dug deep with the franchisor, and are happy with what you’ve learned, then this number-crunching is worth the time investment — and will hopefully yield a lucrative decision for all.
This article is excerpted from Mark Siebert’s book, The Franchisee Handbook, which is a detailed guide to vetting and buying a franchise. Get it at entrepreneur.com/bookstore.
