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Buying a franchise is one of the biggest financial decisions you will ever make. The franchise agreement is a legally binding contract that will govern your business for years, sometimes decades. Before you put pen to paper, you need to have a direct, honest conversation with the franchisor and get satisfactory answers to some hard questions.
This is not a casual checklist. These are the questions that separate informed buyers from people who end up regretting a six-figure commitment. If you are new to how franchising works, consider this your due diligence playbook.
Every franchisor will give you an initial franchise fee number. That number alone is almost meaningless. What you need is the full picture: build-out costs, equipment, inventory, insurance, technology fees, grand opening marketing, and working capital to keep the lights on until you break even.
Ask for a detailed breakdown and compare it against Item 7 in the Franchise Disclosure Document. If the franchisor's verbal estimates differ significantly from what is documented, that is a red flag worth pressing on.
Royalty percentages get all the attention, but they are just one slice of your ongoing cost structure. Ask specifically about advertising fund contributions, technology platform fees, required vendor markups, training fees for new employees, and any other recurring charges.
Some franchisors layer in fees that quietly erode your margins. Get every recurring cost in writing and calculate what your actual take-home looks like after all of them are deducted from gross revenue.
This is where things get real. Item 19 of the FDD may contain financial performance representations, but not every franchisor includes them, and those that do may present data in the most favorable light possible. Ask the franchisor directly: what does the average franchisee earn? What do top performers bring in versus bottom performers?
If they dodge the question or say they cannot share that information, understand what that means. Better yet, ask for a list of current and former franchisees so you can call them yourself. That brings us to the next question.
This is non-negotiable. Any franchisor worth partnering with will give you contact information for existing franchise owners. The FDD is required to list them. But do not just call the names the franchisor hand-picks for you. Reach out to franchisees in different markets, at different stages of maturity, and especially to anyone who has left the system.
Ask those franchisees: Would you do it again? What surprised you? Is the franchisor's support as strong as they promised? The answers you get from people with nothing to sell you are worth more than anything in a glossy brochure.
Territory rights can make or break a franchise investment. Ask whether your territory is exclusive or protected, and understand the difference. Find out if the franchisor can open company-owned locations in your area, sell through e-commerce channels that compete with your local business, or grant another franchisee a territory that overlaps with yours.
Get specific about the geographic boundaries and the conditions under which those boundaries could change. Vague territory language in the agreement is a serious risk factor.
Initial training is standard. What matters more is what happens after you open. Ask about ongoing training programs, field support visits, marketing assistance, and operational guidance. How quickly does the franchisor respond when you have a problem? Is there a dedicated support team or are you calling a general hotline?
Make sure you understand what the franchisor expects from you in terms of involvement and whether the support structure matches those expectations. A franchise that requires owner-operator commitment but provides minimal ongoing support is a recipe for burnout.
High turnover is one of the clearest warning signs in franchising. Ask how many franchisees have left the system in the past three years and why. Were they terminated, did they sell, or did they simply walk away? Item 20 in the Franchise Disclosure Document contains transfer, termination, and renewal data, but you should also ask the franchisor to explain the numbers in their own words.
A healthy system should have stable or growing unit counts. If more locations are closing than opening, dig deeper before you move forward.
Franchising is not entrepreneurship in the traditional sense. You are operating within a system, and that system comes with rules. Ask about restrictions on suppliers, pricing, product offerings, operating hours, hiring, and marketing. Some of these restrictions protect the brand. Others may feel unnecessarily rigid.
The key question is whether you are comfortable operating within those boundaries every single day. If you are someone who needs full creative control, franchising may require a mindset shift.
Franchise agreements have expiration dates, typically 10 to 20 years. Ask what the renewal process looks like. Is renewal guaranteed or discretionary? Will you need to pay a renewal fee, upgrade your location, or sign a new agreement with different terms?
Also ask about your options if you want to sell the franchise before the term ends. Most agreements include transfer restrictions and the franchisor often has a right of first refusal. Understand exactly what your exit options are before you get in.
This is a question most buyers never think to ask, but it matters. Franchise systems get acquired, merged, and restructured. Ask whether your agreement survives a change in ownership and whether the new owner can modify the terms. A franchisor that has been through private equity ownership changes may operate very differently than the one you originally signed with.
These questions are not meant to scare you away from franchising. Owning a franchise can be an excellent path to business ownership, especially when you partner with a franchisor that is transparent, supportive, and genuinely invested in your success. The goal is to make sure you have all the information before signing a contract that will shape your financial life for years to come.
Take the time to review the Franchise Disclosure Document thoroughly, talk to existing franchisees, and consult with a franchise attorney. The best franchisors will welcome your questions because they want informed, committed partners, not buyers who did not understand what they were getting into.
If you are still in the research phase and want to understand which franchise categories generate the most profit, start there. But no matter how attractive the numbers look, always come back to these questions before you sign.