Franchise validation is a somewhat fancy term for a rather straightforward idea. It basically means speaking to current franchisees. During the process of investigating a franchise opportunity a prospective franchise buyer will interview current franchisees. The buyer will speak to as many franchisees as they can in order to get an overview of the daily running and operating of the particular franchise.
The beginning stages of the search for a franchise are generally simple: there are an abundance of resources out there like franchise magazines and exhibitions, online franchise directories which allow you to whittle down your selection to those that resonate with you and are within your budget and desired location.
The next step is validation and this step is particularly enjoyable as it makes the process of buying a franchise seem that much more ‘real’ as you speak to people who are where you want to be. They are likely to have an insider’s perspective on starting and running a successful franchise and give a somewhat ‘unfiltered’ view on things.
When people first start researching a particular franchise opportunity the first thing that they usually want to know about is the financial performance of the business. Normally you are only given ball park figures by the franchisor. This is a reason why validation is so critical, as franchisees have the opportunity to be much more candid when talking about income and earnings. Apart from financial information, validation provides helpful information on what it’s like to work with the franchise system. You get to ask all the questions you like!
How To Prepare For Franchise Validation
Let’s dig a little deeper and look at specifics of franchise validation preparation. Most franchisees are busy running their business so this validation phase can be challenging in terms of finding time when you are both free. Before making contact with any of them it is a good idea to have a list of questions drawn up, to organize your research and what you want to say. You must be prepared and aware of their time constraints. It may be necessary to validate over the span of a few weeks in order to gather enough information.
Another common question relates to how many franchisees you should contact. As a general rule of thumb it is best to speak with five to ten franchisees. What is much more important is the cross-section of franchisees that you speak to. Aim to speak with experienced and newer franchisees as well as ones in both large and small markets.
You may encounter some people that may hold differing opinions of the franchise that you are interested in starting and so it is best to approach the validation process with an open mind.
With a basic overview of the process out of the way, let’s have a look at the particular questions you should be asking. As a potential franchisee unfamiliar with how a franchise operates, how do you know which questions to ask the franchisee?
Our guide will you a great overview. Your questions should cover the entire scope of the business including sales, operations, marketing and financial matters.
We asked Mike Hanrahan from the Maid 2 Clean cleaning franchise to give his top questions for franchise validation to start us off:
- Are you happy with the way you interface with the franchisor? Why?
- How long will it be until you get an ROI?
- Are your earnings in line with expectations?
- What do you know now that the Franchisor didn’t tell you initially?
- Remember to buy a business not a job!
- Does the Franchisor run the business he expects you to peddle?
- Ask the franchisor about his franchisee renewal rate.
What are some of the questions to ask a franchisee?
The easiest and most effective way to go about this is to divide the questions into themed categories and then drill down into each category.
Here are samples to get you started.
Ask about the franchisees background:
- What work did they do prior to franchising?
- Why did they leave to become a franchisee?
- Why did they choose this franchise?
Initial training and support
- Was the training adequate to open the business?
- What do you think you could have done better in the first year?
- What would cause a franchise to fail?
- What were your financial projections? How long did it take you to reach these projections?
- How long did it take you to reach breakeven?
- What could you do differently to increase earnings?
More general questions
Here is a chance to sit back and get slightly more philosophical and candid about the business and the franchisee you are speaking to.
- Where do you see yourself in five years with this business?
- What would you do differently if you could do it again?
- If you had to do it over, would you decide to get into this industry? Why/why not?
Obviously there are many different lines of questioning you can pursue and many different combinations of questions you can ask. You have to adapt and follow the franchisee and this is important as it can lead to new insights. These should give you a solid grounding and set you well on your way when you are going about franchise validation.