If you are looking to invest in a franchise and you have narrowed the field down to a few, and you have started to schedule visits to those brands, there is one important question you should ask, which, if asked in the right way, will tell a few truths.
It is very important to ask the following questions in the order given below…
- How many franchisees have you got currently? (make sure you write this down)
- How many resales have you had in the network? (make sure you write this down)
- How many franchise agreements have been signed since you started? (make sure you write this down)
- If this information cannot be given to you there and then, make sure you get answers to these questions as all franchisors should be able to provide this detail if they want to.
The reason for those questions is to find out how many franchisees have failed since the start without actually asking the question, and the the formula for that is:
Franchise Failures (FF) = Total number of Franchise Agreements ever signed (TFA) minus [the number of Franchisees Trading (FT) plus the number of Franchise Resales (FR) in the network]
FF = TFA – (FT + FR)
The answers you get will sometimes really tell a story and you make your own judgements based on that.
You could of course just ask the franchisor: “How many franchisee have you had leave the network without selling their business (i.e. fail)”, but by doing it in the way I have described above will really tell you if they know, or care, or are willing to get you the information…