Buying a franchise is a deal worth millions, yet it is usually checked against a presentation. We have put together a list of questions worth asking any franchisor – us included.
A good franchisor is not afraid of scrutiny – on the contrary, it counts on it. Below is the order in which it makes sense to study any offer on the market.
Step 1. Check that the network actually exists
It sounds obvious, but this is exactly where a noticeable share of offers falls away.
- How many locations are operating now, not "opened over the whole time"
- Is there a list of locations with addresses that you can check yourself
- How many locations have closed and why – an uncomfortable question, but the answer says more than the whole presentation
- Does the network itself own any locations, or does it only sell franchises
Red flag
A network without a single working location of its own is selling not a business model but a description of one. There is nothing to test such a model against.
Step 2. Talk to existing partners
The most valuable source of information – and the most underrated. Ask for contacts not of those who are offered to you, but of those you pick yourself from the list of locations.
What to ask:
- Did the real investment match the estimate
- How long did the payback actually take
- What did the network promise and fail to deliver
- How fast does support respond when something breaks
- Would you open a second location – and why
The last question is the most telling. A partner opening a second location is better proof of the model than any figures in a presentation.
Step 3. Check the numbers
The financial model must be verifiable, not "the market average".
- Where the revenue figures come from. Fiscal data operator records, till exports, accounts – or verbal promises
- Is there a breakdown by city. A network average says nothing: what matters are locations comparable to yours in population
- What is included in the investment. "Turnkey" often excludes fit-out, working capital or equipment
- Full or operating payback. They are often confused on purpose: operating payback comes within months, full payback within a year or more
Step 4. Go through the contract
Read it with a lawyer, but you can pay attention to these points yourself:
- What exactly the lump-sum fee includes – as an itemized list, not in general terms
- Royalty size and start. From which month it begins and what it is calculated on – revenue or profit
- Territory. Is a zone assigned to you and on what terms
- The network's obligations – are support, training and content updates spelled out specifically
- Termination terms and what happens to the equipment and the brand
- Mandatory purchases: is there pressure to buy from specific suppliers at inflated prices
Step 5. Assess the product
Visit a working location as an ordinary guest, on a weekend. Look at occupancy, how the staff work, the condition of the equipment and how people react.
Separately check what sets the network apart from competitors. If the product can be assembled yourself from off-the-shelf components, you are paying only for the instructions. In-house content and IT platform development is what cannot be reproduced alone.
Signs that should put you on guard
- Deadline pressure. "Two places left, decide today" is a retail sales trick, out of place in a deal worth millions
- Income guarantees. Nobody can guarantee revenue: it depends on the location and on management
- Refusal to share partner contacts or offering only "their own" vetted ones
- Discrepancies in figures between the website, the presentation and the conversation
- No rejections. A network that takes anyone with money, in any city, protects neither the brand nor you
Check us against the same list
The performance of the network's locations is confirmed by fiscal data operator records, the list of locations is open on the network map, and contacts of existing partners and video interviews with them are available without restriction. Ask uncomfortable questions – that is a normal part of the deal.
The last question – to yourself
A franchise removes part of the risk, but it does not turn a business into passive income. A location needs management, work with people and your presence at least for the first months.
If the answer to "am I ready to do this" is no, no amount of franchisor checking will help – and it is better to realize that before signing the contract than after.
