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    Key Questions to Ask Before Buying a Franchise

    July 15, 2024•5 min read•By Lin Brinkley, Esq.
    Key Questions to Ask Before Buying a Franchise

    Buying a franchise is a significant financial and legal commitment. Before signing an agreement or paying any fees, prospective buyers should gather and review detailed information about the opportunity. This article provides general educational information. It is not legal advice.

    Questions to Ask About the Franchisor

    • How long has the franchise system been in operation?
    • How many franchised and company-owned locations are currently open?
    • What is the franchisee turnover rate, and how many locations have closed in recent years?
    • Has the franchisor been involved in litigation or regulatory actions? (This is disclosed in Item 3 of the FDD.)
    • What support, training, and operational guidance does the franchisor provide?

    Questions to Ask About the Financial Obligations

    • What are the initial franchise fee and estimated startup costs?
    • What ongoing royalties, marketing fees, and technology fees are required?
    • Are there any required purchases from approved suppliers, and what are the pricing terms?
    • Does the franchisor offer financing, and if so, on what terms?

    Questions to Ask About the Agreement Terms

    • What is the initial term of the franchise agreement, and are there renewal rights?
    • What are the conditions under which the franchisor can terminate the agreement?
    • What are the transfer restrictions if the franchisee wants to sell the business?
    • Are there post-termination non-compete obligations?
    • How are disputes between the franchisor and franchisee resolved?

    Speaking With Existing Franchisees

    The FDD includes a list of current and former franchisees. Speaking with those individuals can provide real-world perspective on the franchise relationship that the disclosure document alone cannot convey. For professional guidance, consider having an attorney review the FDD and franchise agreement before making a commitment.

    This article is for general informational purposes only and does not constitute legal advice. Each franchise opportunity is different. Consult a licensed attorney before signing any franchise agreement or making any payment to a franchisor.

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