Before you sign those franchise agreement documents – look at the below checklist for things you need to talk to your franchisor about:
- Is the franchisor a one-person company?
- Is the franchisor a corporation with an experienced management team that is well trained?
- Does the franchisor operate a business of the type being franchised?
- Is the franchisor involved in other business activities?
- Is the franchisor offering you an exclusive territory for the length of the franchise?
- Can the franchisor sell a second or third franchise in your market area?
- Do you have the right of first refusal to adjacent areas?
- Will the franchisor sub-let space to you?
- Will they assist in finding a location for your franchise operation?
- Must you lease fixtures, signs or equipment from the franchise? If so, are the prices reasonable?
- Does the franchisor provide financing? If so, what are the terms?
- Does the franchisor require any fees – other than those described in the offering circular – from the franchisee? If so, what are they?
- Has the franchisor given you information regarding actual, average or forecasted sales, profits and earnings?
- Will the franchisor provide you with the success rates of existing franchisees and provide you with their names and locations?
- Are there any restrictions on what items you may sell? If so, what are they?
- Does your prospective franchisor allow variances in the contracts of some of their other franchisees? What is the nature of the variances?
- In the event you sell your franchise back to your franchisor under the right of first refusal, will you be compensated for the goodwill you have built into the business?
- Does the franchisor have any registered trademarks, service marks, trade names, logotypes and symbols?
- Are you, as a franchisee, entitled to use them without reservation?
- Are there restrictions, exceptions or conditions? If so, what are they?
- Does the franchisor have existing patents and copyrights on equipment you will use or items you will sell?
- Does the franchisor have endorsement agreements with any public figures for advertising purposes? If so, what are the terms?
- Has the franchisor investigated you carefully enough to assure that you can successfully operate the franchise at a profit both to them and to you?
- Has the franchisor complied with regulations specific to the industry in which your franchise business will operate? (Include any special licences or legal restriction on operations.)
- Does the franchisor have a reputation for honesty and fair dealing among the local firms holding their franchises?
Other questions you may not have considered are
- How many years has the firm offering you a franchise been in operation?
- What is a description of the franchise area offered to you?
- What is the total investment the franchisor requires from the franchisee?
- How does the franchisor use the initial franchise fees?
- What is the extent of the training the franchisor will provide for you?
- What are your obligations for purchasing or leasing goods or services from the franchisor or other designated sources?
- What are your obligations in relation to purchasing or leasing goods or services in accordance with the franchisor’s specifications?
- What are the terms of your agreement regarding termination, modification and renewal conditions of the franchise agreement?
- Under what circumstances can you terminate the franchise agreement? What will it cost to terminate?
- What are the background experience and achievement records of key head office personnel?
- What is the franchisor’s experience in relation to past litigation or prior bankruptcies?
- What is the quality of the financial statements the franchisor provides you?
- Exactly what can the franchisor do for you that you cannot do for yourself?