Buying a franchise is a major investment, and choosing the right opportunity requires looking beyond the brand name and initial franchise fee. Before committing, prospective franchise owners should understand the full investment, ongoing fees, financial expectations, territory rights, training and support, and the terms of the franchise agreement.
Asking the right questions can help you uncover important details, compare franchise opportunities, and identify potential concerns before you invest. Use the questions below as a starting point for your franchise due diligence, from reviewing the Franchise Disclosure Document (FDD) to speaking with current franchise owners.
Key Questions to Ask a Franchisor Before Buying a Franchise
When considering franchise ownership, asking the right questions is essential to making informed decisions. These questions help prospective franchisees understand the franchisor’s business model, ongoing costs, support systems, and potential risks. By exploring these key areas, you’ll gain valuable insights into the franchise system and assess whether the opportunity aligns with your goals and expectations.
What Is the Total Initial Investment?
Understanding the total initial investment is crucial. This goes beyond the initial franchise fee and includes all startup costs necessary to get your business operational.
Ask the franchisor about:
- The initial franchise fee
- Real estate or lease expenses
- Equipment and technology costs
- Licensing and permits
- Initial marketing expenses
- Training-related costs
- Staffing and payroll
- Insurance requirements
- Working capital needed to sustain operations
Compare the franchisor’s estimates with your own local market costs and financing situation.
What Ongoing Fees Will I Pay?
Ongoing fees affect your operating expenses and profitability. Be sure to ask about:
- Royalties and how the franchisor calculates them
- Contributions to advertising or brand funds
- Technology fees
- Renewal fees
- Training or support fees
- Transfer or termination-related fees
- Required local marketing expenditures
Understanding how the franchisor calculates each fee will help you anticipate your ongoing financial commitments.
What Financial Performance Information Can You Provide?
Distinguish between general sales claims and the financial performance information the franchisor discloses. Request details from the FDD and ask:
- What do the financial performance figures represent?
- How many locations does the financial performance information include, and what types are they?
- What assumptions underlie these figures?
Avoid promises of guaranteed earnings or specific payback periods. Review financial data with an accountant or qualified adviser.
What Should I Review in the Franchise Disclosure Document?
The FDD is a legal document containing 23 required disclosure items. Important areas to review include:
- Initial and ongoing fees
- Estimated initial investment
- Territory rights and definitions
- Franchisor obligations
- Restrictions on products and services
- Renewal, termination, transfer, and dispute provisions
- Financial performance representations
- Franchisee and former franchisee information
- Franchisor financial statements
Note that the Federal Trade Commission (FTC) requires franchisors to provide the current FDD at least 14 calendar days before signing any binding agreement or making a payment. Have an attorney and accountant review the FDD to help you understand your obligations and risks.
Can I Talk with Current and Former Franchisees?
Speaking directly with multiple current franchisees provides valuable insight. Also consider contacting former franchisees to understand potential pitfalls.
Ask about:
- Actual startup costs versus expectations
- Time to become operational
- Unexpected ongoing expenses
- Usefulness of franchisor support
- Biggest operating challenges
- Whether they would invest again
The FDD typically includes contact information for franchisees to assist in this validation process.
How Much Independence Will I Have as a Franchise Owner?
While you own your franchised business, you operate within the franchisor’s system. Ask which decisions you control and which the franchise agreement or operations manual dictates, including:
- Pricing and product/service offerings
- Approved vendors
- Operating hours and staffing
- Required technology platforms
- Franchise location rules
- Local advertising policies
Also inquire about how the franchisor communicates and handles changes to operating requirements.
What Territory Will I Receive?
Territory rights impact your market potential. Ask if your territory is exclusive, protected, or nonexclusive. Understand:
- How the franchisor defines the territory
- Whether other franchise or company-owned locations can open nearby
- How the franchisor allocates online leads or customers
- If the territory can change over time
- Opportunities for expansion within or beyond your territory
What Training and Ongoing Support Will I Receive?
Training and support are critical for success, especially for new franchisees. Ask about:
- Length and format of initial training
- Who must attend training
- Pre-opening assistance
- Site selection and build-out support
- Marketing and lead-generation support
- Technology platform training
- Operational support after opening
- Continuing education and additional training
- Support when regulations or business requirements change
How Does the Franchise Help Generate and Retain Customers?
Marketing and customer retention are key to profitability. Ask what national marketing the franchisor provides and what local marketing you’ll be responsible for. Clarify:
- Lead generation and supply
- Ownership of customer data
- Customer relationship management (CRM) or marketing technology provided
- Contributions required to advertising funds
- Marketing expenses outside of required contributions
What Are the Renewal, Transfer, and Exit Terms?
Understanding your long-term commitment and exit options is essential. Inquire about:
- Length of the initial franchise agreement
- Renewal requirements and costs
- Conditions for selling or transferring your franchise
- Franchisor approval processes
- Termination conditions
- Post-termination obligations or restrictions
- Handling of customer relationships and business assets upon exit
What Are the Biggest Challenges Franchisees Face?
No franchise is without challenges. Ask the franchisor about:
- Common causes of struggles for new franchisees
- Key operating benchmarks to monitor
- Staffing and sales challenges
- Additional capital requirements after opening
- Support available for underperforming locations
Compare these answers with feedback from current franchisees for a balanced perspective.
Making an Informed Franchise Investment
Asking the right questions to a franchisor is essential to making a well-informed decision about franchise ownership. By thoroughly understanding the total investment required, ongoing fees, training and support, territory rights, and the terms of the franchise agreement, you can better assess if the opportunity fits your goals and financial situation. Engaging with existing franchise owners, reviewing the Franchise Disclosure Document, and consulting with legal and financial advisors are critical steps in the due diligence process. Gathering comprehensive information helps you choose a good franchisor and a business opportunity that supports your long-term success and growth.
Ask Freeway Your Franchise Questions
Have questions about becoming a Freeway Insurance franchise owner? We can help you understand investment requirements, fees, training and support, territory availability, and what to expect throughout the franchise process.
Get started with Freeway Franchise or call 877-822-3024 to speak with a franchise representative about the opportunity.
Frequently Asked Questions about Franchise Investment
How Many Questions Should You Ask a Franchisor Before Investing?
You should ask as many questions as needed to feel confident in your decision, covering all key areas of investment, operations, support, and long-term business potential. It’s important to be thorough and not rush this process, as the more you know upfront, the better prepared you’ll be for successful business ownership.
What Are the Most Important Questions to Ask Current Franchisees?
Focus on their actual experience with startup costs, quality of training and ongoing support, challenges they have faced, profitability timelines, and overall satisfaction with the franchisor relationship. Also ask about their interactions with the franchisor, how they resolved issues, and whether they would choose the same franchise again.
When Should You Review the Franchise Disclosure Document?
Review the FDD thoroughly at least 14 days before signing any agreement or making payments. This allows sufficient time to understand all terms, fees, obligations, and risks associated with the franchise. It’s also wise to review it with a legal or financial advisor to make sure you fully comprehend the document.
What Kind of Ongoing Training and Support Can I Expect After Opening My Franchise?
A good franchisor provides ongoing training and field support to help you grow your business and adapt to market changes. This includes marketing guidance, operational updates, refresher courses, and access to resources that keep you informed about industry trends and best practices. Ongoing training can help you stay competitive and supported throughout your franchise journey.
