What is the success rate of existing franchises? What method is used to protect franchisees from poorly performing franchises?

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2 About this Guide This guide was created to help franchise buyers with many of the questions that are relevant to ask franchisors during the buying process. Due to the different types of franchisors and their varying attributes, it is impossible for this document to be 100% comprehensive. Also, some of the common questions were purposefully left out of this guide with the assumption that the franchisor will likely cover them during their discussions with you. Not all franchisors are created equal, so use caution when evaluating their capabilities, strengths and weaknesses. It is highly recommended to discuss the answers that you receive from franchisors with your franchise consultant. About the Franchisor What is the success rate of existing franchises? What method is used to protect franchisees from poorly performing franchises? Is there a franchise advisory council? Who owns the trademarks, service marks, etc., and are they federally registered? Are there any disputes pending or threatened against the trademark. Has the franchisor complied with the FTC and state disclosure laws? Are any senior management or key personnel leaving the system? Does this company compete with the franchisees in the marketplace? Will the franchisor finance any of the costs? How would you describe the culture of the company? What does the brand stand for and why does it matter to our customers? P1

3 Investment What is the total investment required to own a franchise? franchise fee furniture, fixtures, and equipment leasehold improvements lease deposits other deposits franchise training travel expense supplies advertising and brochures grand-opening advertising inventory pre opening staff costs working capital until breakeven working capital - living expenses What are the continued financial costs, the basis used for calculation, method of payment and frequency of payment? Royalty Fee Technology Marketing Other Training What are the location, duration and additional costs of initial training? Who must attend the training? What is the cost of additional staff attending training? Who conducts the training and what are their backgrounds? Is there any certifications required? Will the franchisee have any state license requirements? Who pays for transportation, room and living expenses? Does the franchisor provide training materials for training new staff in addition to the operations manuals? Does the franchisor provide hands-on assistance during the pre-opening, grand opening and initial period? Of what type, duration and cost? P2

4 Products & Services Are there any new products or services under consideration for addition to the franchise? When are they going to be introduced? What is the estimated additional cost for adding the new products or services? Are there any restrictions on the distribution or sale of the product? Is there a guarantee or warranty program? How is it administered and what is the cost? Is there a minimum that must be purchased? Must the franchisee purchase products or services from the franchisor? Operations What are the roles and responsibilities of the field staff? How many locations does each franchise consultant work? What is the background of the franchise consultant I will be working with? Can I meet that person before purchasing the franchise? How often does the field staff visit a franchisee's location? What is the additional cost of field services if the franchisee requires it? Exactly what kind of assistance is given? What kind of supervision or quality control is there? What, if any, is the charge for assistance? What kind of business management systems are provided to boost sales and profits? P3

5 Marketing What type of consumer advertising does the company recommend? What types of cooperative advertising programs are being used? What percentage of sales is recommended or required for advertising or marketing? How do the franchisees obtain their sales leads or customers? What is the franchisor's national/regional advertising program and budget? What portion of the national/regional advertising contribution is used for administrative/corporate/agency expenses and fees? What are the primary advertising/marketing vehicles? What is the grand opening advertising program and cost? If a franchisee is experiencing below average sales how does the franchisor help them? Technology Is the technology platform proprietary or third party solution that has been customized for the business? How does the technology platform benefit the franchisee? What are the Key Performance Indicators (KPI s) that are tracked in the technology? Is there any additional or ongoing fees for use of the technology? How does the technology provide for a better customer experience? Does the franchise have a custom App? How much revenue comes from customers using the App? P4

6 The Customer What do we know about our customers? What is their average spend, frequency and lifetime value? Do we have a customer loyalty or retention program? How does the customer view the franchise brand? What major brands do we directly compete nationally? What are their advantages? What are their weaknesses? Is there a way to guage customer satisfaction? How do we manage our reputation? How many stars does the brand earn from online reviews? P5