Franchisee Checklist - Assessing the Franchisor
The franchisor's company
- Is the franchisor soundly financed? Ask to see audited financial records for three years.
- What is the franchisor's credit rating?
- Who are the franchisor's accountants, bankers and lawyers?
- Is the franchisor a subsidiary of another company and if so whom? Is the parent company soundly financed? Ask to see their accounts as well.
- Does the franchisor have associate companies? If yes, who are they and what is the relationship between them and the franchisor?
- Does either the parent company or any associate operate franchises? If so, would they be in competition with you?
- How long has the franchisor been in this type of business?
- What business experience and qualifications have the franchise's directors and managers?
- Have any of the directors or managers ever gone bankrupt?
- Have they or the company been involved in any litigation or court judgments?
- Is the franchise operation a success?
- Does the franchisor still run any units him/her? If so, how many?
- Are they buy-backs or failed franchises or is the franchisor keeping prime site for him/herself?
- How many franchise outlets does the franchisor currently have? How many are in your country or state? What has the trend been in recent years?
- When did the franchisor start franchising?
- How long has his/her pilot operation been running?
- Has he/she had any franchise failures or franchisee departures? If so, how many, and why did they fail?
- How many franchise owner-operated outlets does he/she intend having in the future? Where will they be and over what timeframe will they be developed?
- What innovations has the franchisor introduced since starting franchising? What plans does he/she have for the future?
- How particular is the franchisor when selecting his/her franchisees? What selection criteria does he/she use?
- Can you interview some of the existing franchisees?
Too many people rush into franchise agreements without carrying out a thorough investigation into the financial status of the franchisor. Many franchisees trading successfully in their local area find themselves in difficulty if/when the franchisor goes into liquidation. Be wary of franchisors who are not forthcoming with up-to-date financial information