Franchising can be an appealing way to start a business, especially if you want to benefit from the name recognition, systems, and support of an established brand. But while the allure of joining a national or global franchise can be strong, prospective franchisees must remember that signing a franchise agreement is a serious, long-term commitment with financial, operational, and legal implications.
Before you invest, you need to understand exactly what you’re getting into. The brand might be a household name, but that doesn’t mean its franchise model is the right fit for your goals, financial situation, or management style. Nick Kambitsis breaks down what to ask before signing with a major brand, with a detailed checklist to help you make a confident and informed decision.
Understanding the Basics: What Is a Franchise?
A franchise is a legal and commercial relationship between the owner of a trademark, brand, or business model (the franchisor) and an individual or company (the franchisee) who wants to use that identity to operate a business. In exchange for a fee and ongoing royalties, the franchisee gets the right to use the franchisor’s brand and often receives support services such as training, marketing, and access to supply chains.
While that support can be invaluable, it also comes with restrictions. The franchisor will typically require franchisees to operate their businesses according to strict guidelines, which can limit entrepreneurial flexibility. That’s why asking the right questions is key to determining if a franchise opportunity is truly in your best interest.
Key Questions to Ask Before Signing a Franchise Agreement
Below is a practical, categorized checklist that prospective franchisees should use to evaluate any franchise opportunity. This will help you weigh costs, obligations, and expectations before putting your signature on the dotted line.
1. Upfront and Ongoing Costs
Franchising involves more than just a one-time investment. Ask for full transparency on the total cost of ownership, including:
- Franchise fee: What is the initial fee for buying into the system?
- Royalty fees: What percentage of gross revenue will go to the franchisor?
- Marketing fees: Will you be required to contribute to a national or local advertising fund?
- Start-up costs: What is the estimated cost to open your location (build-out, equipment, signage, inventory)?
- Recurring costs: What are the ongoing operational expenses required to stay compliant (software subscriptions, training, rebranding)?
- Profitability timeline: How long does it typically take for franchisees in this system to break even or become profitable?
Make sure the franchisor provides a Franchise Disclosure Document (FDD), which outlines all of these costs in detail. Review it carefully, preferably with the help of a franchise attorney.
2. Contract Clauses and Legal Obligations
The franchise agreement is legally binding, and some clauses may surprise you if you don’t read carefully. Key things to look for include:
- Contract duration: How long is the franchise term, and what happens at renewal?
- Exit options: What are the rules or penalties if you want to sell, transfer, or terminate your franchise?
- Territorial rights: Will you have exclusive rights to operate in a geographic area?
- Non-compete clauses: Are you restricted from owning or operating similar businesses during or after the term?
- Dispute resolution: How are disagreements handled—arbitration, mediation, or litigation?
You should also understand the franchisor’s rights to terminate your agreement. Under what conditions can they shut down your location? Are there grace periods or opportunities to cure alleged violations?
3. Brand Expectations and Required Investments
A strong franchise brand comes with high expectations for how you operate your business. Clarify the following:
- Training programs: Is training provided? Where, how long, and at what cost?
- Operational standards: Are you required to use specific vendors, software, or business processes?
- Renovation or upgrade mandates: Will you need to periodically refresh your store to match brand standards? Who pays?
- Technology requirements: Are there required point-of-sale systems, customer databases, or mobile apps?
- Brand consistency rules: Are marketing materials standardized? Can you run local promotions?
These requirements can affect both your autonomy and your operating budget. Be sure you’re comfortable with the level of control the franchisor retains.
4. Marketing and Advertising Support
Brand recognition doesn’t guarantee local visibility. Make sure to ask:
- What national campaigns are running, and how are they funded?
- Is there a local marketing co-op?
- Are you allowed to run local marketing or social media campaigns independently?
- Does the franchisor provide marketing materials and templates?
- How effective has past marketing been in generating leads and conversions?
If you’ll be paying marketing fees, you have the right to understand how that money is spent and whether it will directly benefit your territory.
5. Franchisee Satisfaction and System Performance
Talk to current and former franchisees before making your decision. Ask the franchisor for a list, then independently research more using public records or franchisee associations. Ask questions like:
- Are you profitable?
- Did the franchisor deliver on its promises?
- What kind of support do you receive?
- What challenges have you faced, and how did the franchisor respond?
- Would you invest in this franchise again?
Franchisors are legally required to include a list of current and former franchisees in the FDD. Use it to verify claims and uncover red flags.
6. Growth Potential and Market Fit
Before you commit, evaluate the local market and how the brand fits into it:
- Is there demand for this product/service in your area?
- Who are your competitors, and how does this brand differentiate itself?
- What is the saturation level of this franchise in your region or state?
- What support is provided for site selection and market research?
Your success will depend on the brand’s relevance in your market and your ability to generate consistent traffic.
Proceed with Caution and Confidence
Joining a franchise can be a profitable and fulfilling path to business ownership, but only if you do your homework. A flashy brand name doesn’t automatically mean a well-managed franchise system. As with any investment, due diligence is essential.
Before you sign, be thorough. Read the FDD. Hire a franchise attorney. Interview current owners. Visit stores. Ask tough questions. Use the checklist above as your guide and don’t let enthusiasm cloud your judgment. Franchising is a partnership. Make sure it’s the right one.