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Home > Franchisee > Assessing a Franchise Opportunity

Assessing a Franchise Opportunity

Buying a franchise business can be a life changing experience, and although a proven franchise opportunity can take some of the risk out of business for a franchisee, it will never be completely risk free. This is why it is very important that as a franchisee you do your due dilligence and ask questions before you sign a binding franchise agreement.

To help you with your due diligence the Centre has developed a free pre-entry franchise education program, sponsored by the Australian Competition and Consumer Commission. The program is made up of five short modules and is offered entirely online, so you can complete the program from anywhere.

As a prospective franchisee, in addition to completing the pre-entry franchise education program, asking questions is not only suggested, but encouraged by the franchise sector. There are several groups of people able and willing to help with franchisee due diligence, such as:

• The Franchisor
• Other Franchisees
• Franchisees who have left the system
• Advisors – Lawyers / Accountants / Business Advisors

Other groups can also assist a franchisee with due diligence and have useful questions you should ask when assessing which franchise opportunity is right for you, including:

Some recommended questions for assessing a franchise opportunity

Assessing a franchise opportunity: Franchisor questions

• How long has the franchisor been in business? Are there only a few franchises, or are there hundreds? Is the franchise business stable?
• What are the growth plans for the franchise business? Will the franchise be strengthening in the near future?
• What support is available to me as a franchisee? How often will I interact with the franchisor once the franchise is operating?
• How much time will I be expected to spend on the franchise business each week.
• How much investment is required to start? How much cash will I need in addition to the start up capital?
• Is the franchise accredited by the major banks to allow easier access to financing?
• What is expected of the franchisees of this franchise?
• Is there an opportunity for me to be involved in the franchise on a Franchise Advisory Council or Marketing Committee?
• What attributes do the most successful franchisees in this franchise network have in common?

Assessing a franchise opportunity: Questions for other franchisees

• If you had the opportunity again, would you buy this franchise again? Why or why not?
• What do you know now that you wish you knew when you first joined the franchise?
• How long did it take you to recoup your investment?
• What can I expect for time commitments?
• What were your start up costs? Are their costs that are not accounted for in the estimates?
• What is the culture of the franchise? Ask yourself if this is a culture that you are comfortable operating in.
• Which Accountant / Lawyer do you use? Would you recommend a new franchisee use them?
• What is the best aspect of being a franchisee in this franchise business?

Assessing a franchise opportunity: Questions for ex-franchisees

Each franchisor is required to provide a list and contact details for franchisees who have left the system in past years in their Disclosure Document. These franchisees can be a valuable source of information for not only how the franchise business operates, but also on why they decided to leave the franchise. Some franchisees will have left due to dissatisfaction, and others may have left for commercial reasons such as receiving an attractive price for the sale of their franchise. Suggested questions for this group include:
• What did the franchise business do really well? What are its weaknesses?
• Would you reinvest in the franchise business?
• Why did you leave the franchise? Was it personal reasons, or dissatisfaction with the business or franchise system?
• What kind of support was offered by the franchisor?

Assessing a franchise opportunity: Professional advisors questions

• Do the numbers provided by the franchisor make sense?
• What is the best business format for me in this franchise?
• Do you have any other clients from this franchise business?
• Does the Franchise Agreement meet the requirements of the Franchising Code?
• Does this seem like a good franchise business opportunity?

Additional questions prospective franchisees are encouraged to ask during their due diligence process are included in the free pre-entry franchise education program.