Interviewing Franchisees: The Most Important Question to Ask
Once you've received the Franchise Disclosure Document from the franchisor, your likely next step will be to interview the current franchisees. This interview process is crucial, after all, it is the franchisees themselves (and not the franchisor's sales team) that will give you a true picture of what it's like to be a franchise owner. So how do you make the most of your interview?
The most important question you can ask a franchisee is "are you profitable?"
Talking about money, especially with people who you're just meeting for the first time, is incredibly awkward. Typically even the best of friends don't share income and salary information with one another, so to ask a stranger to divulge such information can seem very intrusive. And while it might be awkward, it's crucial.
The franchisor is not required to disclose the financials of its franchisees. If the franchisor does choose to disclose this information, it must be done in a specific format in the FDD. But if the FDD does not make an Item 19 financial disclosure, then the franchisor must not talk about numbers with any franchise candidates. Period. This means that in order to get a true financial picture, having a potentially awkward conversation with the franchisee is mandatory if you want to make smart investment.
The good news is that franchise owners will anticipate being asked about their financials, because chances are they had the same question when they were looking to buy into the franchise. This is not the time to be shy: ask how long it took to break even on their initial investment. Ask if they find the royalty and other fees to be a burden to their profits. And be sure to ask if they are actually making a profit that is livable. Don't be afraid to ask for specific numbers--again, the franchisee will expect these questions and will certainly understand that you are just trying to make an informed decision and not just being nosy.
So while it might be nice to chitchat with the franchise owner about the day-to-day operations and the relationship with the franchisor, the most important question you can ask during your interview is about money. It might not feel comfortable at first, but you will be thankful that you made the effort to get this ever-important information.
For more ideas on what to ask franchisees during your interview, please reach out to us. We're happy to help!