Legal Blog

Franchise Facts: Tips for Speaking With Other Franchisees When Doing Your Due Diligence


If you are buying a franchise, be prepared to be inundated with information. Before long, you will be presented with a Franchise Disclosure Document (FDD) thick enough to stop a bullet. While it is easy to get bogged down in the details disclosed in the FDD, there is a user-friendly document that must not be overlooked — a list of other franchisees, along with their contact information.  Used properly, this list can be an enormously effective information-gathering tool.

Here are a few tips to consider before reaching out to other franchisees:

  1. Try to Meet in Person.  Where possible, try to schedule meetings in person.  This will help you judge the franchisee’s credibility and will often result in a more relaxed session. Of course, in-person meetings are not always possible. However, if you are within a reasonable distance, try to either schedule a meeting or stop by, if there is a retail location.
  2. Contact Local Franchisees.  Every market is different.  For this reason, it is important to get a sense for the franchisees in your targeted location.  Local franchisees will have useful information relevant to your area that may not affect other franchisees.
  3. Ask Pointed Questions.  Be sure to ask pointed questions where appropriate.  For example, “Does the franchisor give you the support you need?”  “Does the franchisor advertise in your market?”  “Do you get a benefit from advertising?”
  4. Ask Open-Ended Questions.  You should also prepare some open-ended questions. For example, “What do you like about the franchise?”  “What do you dislike about the franchise?”
  5. Read Between the Lines.  Some franchisees may not be comfortable talking about their franchisor if they feel the information will get back to the franchisor. No franchisee wants to be responsible for causing a prospect to walk away.  Keep this in mind when you ask your questions and be sure to read between the lines if you sense a franchisee is uncomfortable answering a question.  Remember, franchisees with good things to say won’t be afraid to talk about those things.
  6. Ask Questions About Other Franchisees.  Because some franchisees may be hesitant to speak badly about a franchisor, consider asking some questions aimed at other unnamed franchisees.  Instead of asking questions such as “Do you believe the franchisor is fair?”, consider asking “Do other franchisees think the franchisor is fair?”  Franchisees may be more willing to speak if they are not giving up personal opinions.
  7. Be a Secret Shopper.  In some cases, it might be possible to ask questions without alerting the franchisee you are investigating the franchise. This could happen if you are visiting the local franchise, for example.  These encounters present the perfect opportunity to ask general questions of the owner, if you know who he or she is.  “Are you the owner?”  “How do you like being a franchisee?” Chance encounters can provide useful information, and are more likely to get honest answers.
  8. Call As Many Franchisees As Possible.  More information is always better than less information.  Call as many franchisees as possible.  Most phone plans have unlimited calling, so there is no excuse.
  9. Ask How Long They’ve Been Franchisees.  Always ask franchisees how long they have been in the system.  Older franchisees will have different insights than younger franchisees, and may have good comparisons between the old days and the present.  This information can signal where the system is headed in the future.
  10. Don’t Limit Your Calls To Recommended Franchisees.  Some franchisors will steer you to certain franchisees or regional managers.  While there is no harm in calling these folks, you should not limit your calls to the chosen few. Remember, there may be bias involved here, and you want to get as large a sample as possible.
  11. Plan Your Questions Ahead of Time.  Remember that franchisees are busy.  Be sure to plan your topics in advance, so as not to waste time.  If possible, try to ask your questions from memory, so as to avoid formalities. Franchisees who feel you are making a “record” may be less likely to speak with you.

These are just a few tips you may find useful. Good luck!

 

If you have any questions about this topic or any other franchise law issue, please contact Brian Loffredo at bloffredo@offitkurman.com.

ABOUT BRIAN LOFFREDO

bloffredo@offitkurman.com | 301.575.0345

Brian is a commercial litigator with more than seventeen years of experience representing clients in the franchise industry. Brian routinely assists clients during the licensing and franchise/FDD review process, as well as with the resolution of franchise-related disputes, including those involving terminations, territorial disputes, fraud, disclosure/relationship law violations and breaches of contract.

In addition, Brian represents and counsels clients in the construction industry on matters involving litigation, construction defects, licensing and compliance, collections, mechanic’s liens, payment bond and Miller Act claims, contract drafting, and compliance with home improvement laws and other construction industry laws.

Brian also has extensive experience representing financial institutions with workouts, collections and residential / commercial foreclosures.

 

 

 

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