Understand Operating Requirements of Franchise before Joining


How franchisees operate their stores is probably the most contentious issue that raises friction between the franchisor and the franchisees. We have come across number of franchises where the franchisee and the franchisor are at odds with regard to how the store should be operated – the franchisor wants franchisees to keep the stores open late to improve sales; while the franchisees only look at it as increasing their labor expense without adding much to the sales.
In our opinion, there needs to be a balance between the needs of the franchisor and the franchisees. However, in real life, the balance is usually tilted in franchisor’s favor. The district supervisors and inspectors hold a lot of sway in dictating how franchisees run their businesses and can even impose penalties and other restrictions in many cases. In one example, the inspector asked the franchisee of a fast-food restaurant to replace the oven because it was not showing proper temperature. It could have been repaired for $1,000; but the franchisee ended up spending $20,000 for new oven simply because the inspector insisted on it.
How can you ensure that you understand whether franchisor runs the operations in a pragmatic or dictatorial fashion and avoid getting into a franchise where you have constant fights?

In an earlier post we showed 10 questions you must ask franchisor in the first meeting before deciding to join hands with them. In that post we covered broad areas including marketing, products and operations. Since operation is such an important function and often subject of contention we think it’s important to pay particular attention to understand the operating requirements of the franchise. With that in mind, we have listed below 10 additional questions that focus specifically on operations. You should also look at previous blog posts that discuss qualities to look for in a good franchise as well as signs that show the franchise will be successful.

  1. How often do you perform business inspections?
  2. How do you handle disagreements between franchisee and supervisor / inspector?
  3. What are the special operating requirements in terms of equipments, locations, hours, etc.?
  4. What are your plans for store upgrades in the near future?
  5. When was the last time store upgrade was required?
  6. What products are franchisees mandated to buy from the franchise?
  7. Are there any special rules regarding owner presence in the store?
  8. Who are the contacts at the franchise office for the franchisees? How can franchisees contact them?
  9. What are the payment terms for the franchise?
  10. How often do you hold meetings between franchisees and franchise?

What has your experience been in terms of operating stores as franchisee? What additional questions would you recommend?

Image Courtesy:   brent_nashville

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