Franchise Update Magazine Issue IV, 2012 | Page 52

Grow Market Lead

Challenge
the pros
How can you help prospects
with what questions to ask and
what information they should
be seeking from franchise
development people and
franchisees?
Erin Crawford
Director of Franchise Development
United Franchise Group

The following are
five areas I believe
are important for
prospects to inquire
about:
1) Costs and
what’s included
(franchisor). It is important to ask a
franchisor about the various costs associated with the franchise. A franchise
fee usually covers the training, imple-

continuing costs include national marketing or advertising fees and are calculated
as either a percentage or flat fee.
2) Training and support (franchisor). Training should be well-planned,
and prospects should receive detailed
training and operations manuals. It is
also good for a prospect to be prepared
for additional expenditures if the franchisor does not cover travel and lodging costs during training. Further, they
should ask what costs, if any, are associated with additional training for spouses,
partners, or staff.

“It is important to know how
long it will take before your
doors are open, and even
more important to know how
long until your business is
fully up and running.”
mentation, and setup. The total investment includes the franchise fee, working
capital, inventory, and equipment costs.
The initial investment is the amount of
liquid capital required up front after all
financing options have been applied.
Ongoing costs include royalties, usually calculated as a percentage based on
gross revenues, that will cover ongoing
support programs from the franchisor.
In some cases, the markup on products
required to be purchased directly from
the franchisor will constitute royalties.
Very seldom, a franchisor will set a cap
or maximum amount on royalties. Other

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Franchiseupdate Iss u e IV, 2 0 1 2

Prospects should ask about ongoing
marketing and support provided by the
franchisor. Often, an established field staff
and/or mentor program can be crucial for
a franchisee’s initial success. The training will serve as a foundation. However,
local ongoing support will definitely help
a new business owner implement their
new knowledge in the best practical setting… their own business!
3) Expectations and financial questions (franchisee). We have a saying in
our office for our prospects: “The best
way to learn about this business is to sit
down and talk to someone who does it

for a living.” Legally, franchisors can talk
about earnings with prospects only when
disclosed in their FDD. After a prospect has had a chance to speak with the
representative from the franchisor, they
should meet with existing franchisees
to seek information relating to financial
expectations.
4) How long until up and running?
(franchisee). It is important to know how
long it will take before your doors are
open, and even more important to know
how long until your business is fully up
and running. Asking a few existing franchisees how long it took to get off the
ground will help prospects understand
what factors influenced the time it took
to begin operations.
5) Industry and territory (franchisee). Prospects should ask multiple existing
franchisees what kind of growth or decline
they have experienced. They should also
ask what potential new products and services are on the horizon. Franchisees will
be able to communicate the programs in
place to encourage cohesiveness among
other franchisees, as well as the marketing efforts that help the brand stand out
in the marketplace.

Brian Sommers
Vice President, Franchise Development
)