Before You Sign an Agreement: Talking with Franchisees

For many, purchasing a franchise will be the most significant investment they’ll ever make, and no one should ever buy a franchise without performing the proper due diligence. And while looking over the Franchise Disclosure Document or visiting a Discovery Day is important, candidates should also consult with those who know the day-to-day life of the business best — the actual franchise owners. Talking to existing franchisees who already have experience operating the specific business can give candidates a fuller understanding of the brand and the franchise requirements.

“These are people who followed the model and have hopefully seen success, so talking to existing franchisees like that gives prospects a real-life example of what to expect,” said Corey Elias, founder of Franchise Captain. “Franchisees are also relatively unbiased — there is no financial incentive to lie. They will tell you how it is: the good, the bad and the ugly.”

It’s important to speak to a whole bevy of individuals. Franchises might have a list of recommended franchisees to speak to, but don’t limit yourself to only contacting these individuals. Moreover, consider speaking to those who have left the system to get their perspective and experience with the brand. A good rule of thumb is to call 10 to 15 franchisees. The contact information for these owners should be found in Item 20 of the FDD, which offers a spreadsheet that contains all the franchises that have opened, closed or transferred in the past three years. 

Charlie Bever, The Entrepreneur Authority senior franchise consultant, says he instructs all of his candidates to make at least five validation calls during the due diligence process. “That way you have a nice cross-section of opinions,” he said. “If you made five calls and all were negative, this would be an obvious problem. It usually doesn't happen like that though. For every ‘bad’ call, the prospect likely receives four positive calls or reviews. Making validation calls is a crucial part of the investigative process.”

If franchisees find an alarming number of complaints about the franchise from other franchisees, it may be a sign to avoid moving forward with the process. But Elias says it is important to take franchisee complaints with a grain of salt.

“The process of choosing a franchise is extremely personal — is the concept right for me? If I talk to five franchisees and only one gives me a bad review, I’m not overly worried unless that person has a very similar situation and background,” said Elias. “If they are struggling because they don’t have a sales background, and I also don’t have a sales background, that could be a problem. Dig deeper — talk to other franchisees, focus on that sales background and figure out if it is really a problem.”

During these conversations, candidates should ask questions that may not be answerable through the FDD, such as whether the experience has been fulfilling, whether it met the person’s expectations, whether the leadership team is as supportive as they claim, etc. 

In addition, talking to existing franchisees can give candidates valuable insight into the true culture of the franchise system and the type of network they will be joining. 

“There is always going to be some hesitancy when you consider becoming a franchisee and following someone else’s path and guidance,” said Christmas Decor* franchisee Adam Anderson. “A big part of the reason we fell in love with the brand was because of the network of franchisees — that is where success comes from. The strength of that network can provide franchisees with valuable lessons and best practices, and franchisees should be able to reach out to other owners, ask questions, visit locations and see how they operate.”

By reaching out to established franchisees, candidates can be better prepared to analyze the specifics of franchise opportunities and discern which ones are well-positioned for success and best fit their individual needs.