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10 essential questions a franchise applicant should ask

Protect your investment by getting a better feel for your prospective franchise of choice.
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Franchising is popular due to its promise of steady, stable income. And in a country where franchising is booming, there are many opportunities available and numerous franchise options.


But before parting with your hard earned money, first you need to make sure that your investment will be a safe and painless one. Granted, there is no such thing as a sure fire business, but it never hurts to ask the right questions before getting a franchise business. Philippine Franchise Association (PFA) Chairman Bing Limjoco, gave Entrepreneur a list of questions any prospective franchise applicant must ask before getting one:

1. How much do I need to invest? This question is a crucial jump off point, because this will give you an idea if you can indeed afford to get a franchise. "Mind you, the initial investment is only usually the first part, so make sure that all costs are accounted for," she said.


2. How much revenue should I expect? Knowing how much to expect will help you plot a good financial model for your business. But don\\\'t just take their word for it: ask around. "Go around and ask their franchisees about this, and even ask the mother company to schedule appointments for you. A good franchise has nothing to hide, so they\\\'ll grant you access," Limjoco said.

3. How much profit will I make? This helps you get a feel for the profit model the company is currently implementing. Depending on the mind of business, profit margins can range from minimal (they rely on volume) to substantial. Factor this in when making your decision.


4. What is your expansion plan? A long term vision is a sign that the business is here to stay, not a fly by night operation. "Ask for specifics, number of branches they plan to have in three years, for example," she said.


5. Will you provide an operations manual? An operations manual is the heart and soul of a franchise. It gives the franchisee specific directions on how to operate the business to its maximum efficiency. Beware of companies that don\\\'t issue operations manuals, as they are either inexperienced or illegitimate.

6. Will you provide full training courses? A training course can help familiarize franchisees on the day to day operations of the business. "This is very important, because it will let you know how to run it, and at the same time, you will know where the potential problems will arise from," Limjoco said.

7. How much is the royalty? Royalties can be determined as a percentage of gross or net sales derived from use of the asset or a fixed price per unit sold. In the franchise system, this can range from as low as 4 percent and up. Knowing this will let the business owner know his monthly obligations to the mother unit, and factor this into his financial projections.


8. Are there non-royalty fees?

9. Terms of the franchise agreement? "Franchise agreements have a set of number of years, and a renewal fee in them. This also establishes the expectations from both sides, and sees to it that it will be a mutually beneficial partnership," Limjoco said.

10. What is the investment payoff period? Finally, the period wherein you will recoup your investment is a very important number to know. An investment payoff period underlines the viability of the business, and also sets expectations. "For most people, this is a critical question to ask, because they want to know when they can start making money out of their franchise. Ask other franchisees about their experience, and take that into consideration," she said.

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