While independent food and beverage operators are still feeling the effects of the COVID-19 pandemic, with almost 85% at the brink of closure, a good number of bigger food and beverage brands are well-primed to swim through while also actively expanding their market.
For instance, Domino within the past two years has hired around 10,000 workers, while pizza franchises are experiencing massive growth. Agreeably, food franchises are the most identifiable businesses in franchising.
When entrepreneurs consider franchising, food franchises are without doubt their first consideration. Aside from the need to have a passion for the art, the trick is to find a quality franchise opportunity that’s a good fit for your local area and that has room to grow.
Every prospective food franchise owner is advised to approach this stage of the process from every angle. If you are looking to find the best franchise for you to build with, here are some questions to ask before you make your investment.
Questions to Ask Before Buying a Food Franchise
What Are the Franchise Investment Costs?
This will surely vary depending on the food franchise you intend to invest in. There are numerous options in this market; from restaurant franchises to food truck franchises and even coffee brands.
The investment cost of these franchises include – but are not limited to – franchise fees, ongoing royalties to the brand, store build-out costs, cost of equipment, inventory, and many other things. It is also important to meet the financial requirements of the brand. Speak with the franchisor to discuss specific investment costs.
Who is Your Ideal Candidate?
When you ask this question, just sit back and listen to what the franchisor has to say about who is a perfect fit for the franchise. Does that seem like you? Note that a good franchisor will analyze you almost the same way and time you analyze them. Once you feel you are not a good fit, you must find out before you sign the dotted lines of the franchise agreement.
How Much Liquid Capital Will I Need To Maintain To Cover The Franchise Until It Breaks Even?
Aside from investment costs like initial start-up costs, franchisees will need substantial operating capital for the first few months at least until the business breaks even. Owing to that, it is pertinent you find out the amount of time it takes for other franchisees to start turning a profit so that you can be financially equipped.
What Are The Ongoing Fees? How Do Your Royalties And Marketing Fees Work?
It is also advisable that you get to know what your ongoing financial obligations to the franchisor are, and whether or not you are mandated to pay a royalty or other ongoing fees such as for advertising. A good understanding of these fees and how they work is very critical in managing your business.
How Many Franchises Does the Brand Have?
Most often, the number of units a franchisor has is used to judge their size but not necessarily their success. Truth be told, what matters is if the franchisees are receiving ample support. A large franchisor may be too occupied to give precise attention while an up-and-coming franchisor may not have adequate resources. Therefore, follow up this question with what the success rate is among their franchisees and what the reasons are for failed units.
Will You Help Me Find A Good Location?
Although this will often depend on the area you intend to locate your franchise, the franchisor should have a good knowledge of the best sites in that area. Find out if they can help you select the best site for your franchise and, if need be, assist with lease negotiations.
Can You Provide Extra Financial Assistance?
Numerous food franchisors help prospective franchisees provide for their financing needs—or at the very least make available lender recommendations or support through the U.S. Small Business Administration (SBA).
Aside from the information on the initial franchise fee, Item 7 in the FDD will most often note your additional expenses, and this may include grand opening promotions, business and operating licenses, equipment, business insurance, and employee salaries. Other ongoing costs may also include advertising fees, accounting, and legal help.
Can You Tell Me More About Your Training Program?
Aside from the normal process of training new hires, it is necessary to know what’s involved in the company’s operational training program, and the sort of extra support they offer. Note that this support can include assistance during your grand opening to various types of ongoing support once your business has started.
What’s it Like to Work There?
A good number of prospective food franchisees fail to consider shadowing an owner to enable them to get a first-hand insight into what it is like to handle the franchise on a day-to-day basis. Piloting the affairs of a food franchise comes with numerous issues.
Learning about the day-to-day tasks of a typical franchisee can help you get a clear picture of your daily work life. Additionally, don’t forget to ask about the greatest challenges most franchisees face to help you decide whether the franchise opportunity will be a good fit for you.
What Changes Did You Make To Support Franchisees Through Covid-19?
This is a vital question you wouldn’t have asked years back or maybe even ask shortly. Having first-hand knowledge on how the franchisor handled things during the worst of times will tell you how things might go in the best of times — or the event of another crisis.
During and after the pandemic, some franchisors offered extensive support to franchisees. They kept them informed, helped to obtain paycheck-protection-program funding, and added Covid-19-specific marketing initiatives. A good number of them even waived fees, added new technology, and inculcated extra revenue streams.
What Sets You Apart From Your Competitors?
Indeed, the market for food brands is stringently competitive; however, some of these brands are more innovative and unique. From the answer you get from this question, you will find out where the brand falls within the spectrum, the level of competition in its market, and who the top competitors are. Don’t forget to ask the franchisor what their unique selling points are and the competitive advantages they bring to the market.
How Much Money Can I Make?
The truth is that no franchisor can accurately predict your success; however, they should be able to have an idea of what a typical franchisee makes and your income potential. Expect the franchisor to give you gross sales information that won’t necessarily include expenses for rent and other operating costs.
What Kind Of Input Will I Have In Marketing And Advertising?
Most often, franchisees are expected to contribute to a local, regional, and/or national advertising fund as part of their agreement with the franchisor. Owing to that, you must ask the food franchisor if you will have any say in how that money is spent and what opportunities there are for marketing in your local area.
What Is Your Failure Rate? How Many Locations Have Closed and Why?
Have it in mind that even the most successful franchise brands have closed locations for one reason or another. Sometimes, it can be the franchisee’s fault. Maybe they lacked the necessary skill set or failed to adhere to the system. In some cases too, it is the franchisor’s fault. No one goes into business to fail, therefore you should extensively examine a brand’s failures no matter who was at fault.
What Are Your Expectations Of Your Franchise Owners?
Once you decide to take the franchise route, note there are many expectations placed on you in terms of payments, operations, and other obligations as per the franchise agreement. Therefore, you need to have a discussion with the franchisor in a bid to understand what is required of you as a unit operator.
What Will My Territory Be And How Will It Be Protected?
From the answer you get from this question, you can find out how the franchisor manages territories for its franchisees and what rights you have within the signed agreement. Is your franchisor expected to approve the location of your franchise? Do you get an exclusive or protected territory? It will do you well to find out whether you will be protected from competing units that may have an impact on your success.
How Do You Resolve Disagreements Or Disputes?
When researching your franchisor, it is imperative to find out as much as you can about the franchisor’s litigation history. Most times, Item 3 of the FDD provides details regarding legal action involving the franchisor and its officers.
Have it in mind that a large number of claims would entail that the franchisor has a history of not meeting up to the franchise agreement. Use this opportunity to ask the franchisor about their process for dealing with disputes with franchisees as well as the basis that would warrant your franchise agreement getting terminated.
Can I Speak With Current Franchisees About Their Experience?
While is a necessary part of your research, it is recommended you ask the franchisor before you proceed. Franchisors are mandated to provide the contact information of both current and past franchisees. Note that consulting with both can give you a clearer perspective on how the franchise system operates and its pros and cons. Also, be wary of any franchisor who tries to dissuade you from reaching out to other franchisees.
How Financially Strong Is Your Franchise?
The COVID-19 pandemic’s effect on the food industry has been well-documented, with experts projecting upwards of a $165 billion loss for the industry to date. Owing to that, it is important to understand a franchisor’s financial health. Does the franchisor have the capacity to support staff on payroll during a downturn? Will the franchisor have enough capital to keep going if royalties are delayed?
What Are The Terms Of Me Selling My Franchise?
There are numerous reasons to consider your exit strategy right from the very beginning. What if you fall sick, or had to move quickly owing to certain family reasons? Is there a possibility to sell to anyone, or do you have to deal with the franchisor? Also, find out if the company will charge you for selling your franchise or maybe even restrict your ability to pull out of the business?
Indeed, there are plenty of choices in the world of food franchising. However, don’t forget that your franchisor should be interviewing you as much as you are interviewing them. Going down the Franchise route is simply not for everyone.
Note that having the financial resources necessary to get started doesn’t necessarily entail that you will make a good franchise owner. Remember to seek the help of experts, and also do not forget to keep asking questions.