Although it can sometimes be difficult to ask direct questions, we think it’s important to do precisely that when you’re buying a franchise.

Here are three crucial questions to ask your prospective franchisor – and how to make sense of the response.

1. How much will a franchise cost?

It’s vital to get a direct answer to this question — ideally when you make the first inquiry about the franchise. When we say ‘cost’ we mean every expense you will incur to get the franchise established. It includes the initial franchise fee, training fees, fitout of premises and equipment, including vehicles.

If you’re buying an existing business it includes the cost of the business and any additional fees from the franchisor. 

On top of these costs you will also need to pay for legal advice and accounting advice. The reason it’s so important to know this number is that you need to make an assessment of whether you can afford to buy the franchise, and you can’t do that unless you have a good idea of the cost.

2. How much of the cost can be financed through leases or loans?

Regardless of which franchise you consider, you’ll need to use some of your own capital to fund the business.

However, you might also be able to finance some or all of the equipment, vehicles and fitout with a lease, loan or chattel mortgage. In some cases a bank may also lend you money to get the business started.

When you know what can be financed you’ll be able to assess whether you are likely to have sufficient funds to get the franchise underway.

In our experience it’s vital to consider the financing question early in the process. This will put you in a better position to make decisions on the business and to get it up and running without delays due to financing.

3. How much can I make?

I believe you deserve a good answer to this question. 

A good response from the franchisor could be something like “In our disclosure document we provide a snapshot of turnover and costs of existing franchisees. You are able to see the average of the top, bottom and middle performers, and how many franchisees are in each category.”

If the franchise locations vary, the results might be shown for similar groupings. 

For an emerging franchise, a good response might be “We include averages for the main costs, based on the results of existing franchisees, together with monthly sales figures for the first 24 months.”

By contrast, a response of “We aren’t able to tell you that because the law prevents it” is a poor response and should be considered a red flag.