We're back again to talk about the questions you should be asking franchisees. We went through other categories before today's episode. We're going to be covering expectations, and there are a couple of questions in this category that we think is very critical.
What we did in our previous episodes: I'm going to ask Stacey to elaborate on each question. Maybe give an example and why we believe this is so important that you get this information during your due diligence phase of evaluating a franchise.
So Stacey, let's go ahead. Question number one. Are you ready? Did your due diligence prepare you for the business? And if not what surprised you?
So in our coffee smoothie business, what was it? Did we do our due diligence? Did your due diligence prepare you for the business? So did you go in with the right expectations? That's exactly the question from my perspective.
Well, yes and no, and we actually did two episodes on this: "If We Had to Do it Over Again Would We"? So go watch that video if you want the in-depth, I would say the biggest negative personally, I'm talking to you as a franchisee. I was too emotionally attached in making the decision. I wasn't really looking at hard data. I was too caught up in the fun of it. Being able to work behind a Tiki bar and sell umbrella drinks. Like that was just fascinating. So if I had to do it over again, I probably would've done much more due diligence.
As Dave kind of alluded to in a previous episode, it was actually kind of hard to get the data. In doing your due diligence know that there is an Item 19. So sometimes as you're talking to prospect franchisees you might be able to dig into the data because the franchisor will NOT be able to give you any earnings claims at all. But sometimes the franchisee will share their numbers with you. In our case, they couldn't because we were kind of a cash-based business and therefore they didn't have an item 19.
It's critical here that you get enough information out of the due diligence phase that you know what to expect. And the reality of it is that when we did our due diligence I don't feel that we went in with the right expectations. It's as simple as that.
I think due diligence also encompasses doing a business plan and doing a budget. You need to know your numbers. When are you gonna break even? You're putting money to invest in a franchise, which includes your franchise fee, your training, your ramp up, your grand opening, whatever that's going to be and it's not a small investment.
So you're going to want to know when is your breakeven and when does the cash flow start to be positive. Even though you're opening up a franchise on day one doesn't mean you're gonna be profitable on day one. So how are you going to have the cash flow? That's why franchisee's that we work with we will want to make sure you have enough money in the bank. That you can pay your rent, your mortgage, and continue eating. You need to know that from your own business perspective because the franchise won't be able to answer it specifically for you. So hone in on the numbers and work with someone like us to help you really make sure that your business plan, your marketing plan, and the numbers are realistic and going to make sense for you.
So question number two. How much time do you spend on your franchise business per week? How has this changed over time?
That's a great question. In our Hawaiian theme coffee/ smoothie business I would say we were easily putting in 40 plus hours a week because we were excited. We grew like gangbusters. So in our first year, we had 10 of these mobile Tiki bars all around the DC area. Now in other franchise concepts that's unlikely you're gonna have 10 units open in a year. Every franchise is going to be different because if you're doing like a brick and mortar concept you may sign your franchise agreement, but you may not literally be opening up to six months a year, sometimes two years down the road until you find the right real estate. So how much time do you spend on your business is a great question to ask a franchise owner-operator.
If so, are they working in the business or are they working on the business? Which means do they have a management team in place? In our sit?
In our case, we hired a manager. So we had a manager running the day-to-day operations and Dave and I were focused more on the marketing and the technology side of the business. But as you are talking to other franchisees, understand are they full-time in the business? Are they part-time in the business? Do they have other gigs going on?
A lot of times we work with candidates who actually own multiple businesses because they want to have a diversified stream of revenue in different kinds of businesses for the ebbs and flows of the economy. And/or is this a passive income kind of play? And therefore you can get a sense of based on how long they've been in the business, are they happy in the business and how much time and effort they're putting into the business can also help you understand what tier they're in.
Because if you talk to somebody who's only putting in a few hours a week and that doesn't have a lot of positives to say about the franchise. Wishes that they never did it, yet they're on that bottom tier. We encourage you to talk to people in all three tiers and maybe that scenario that's the franchisee's fault that they're not a stellar performer. But balance that out with somebody who is a stellar performer.
We've been number one in our franchise for the past 16 years. Well, what made us successful at it is we took a full-time vantage point when we started. Now we're not working full time in it today, but we don't just push it aside and say, oh well, whatever happens to it happens to it. No, we have a manager who we hold accountable and we each do what we do best. And therefore not only because it was a great franchise match, but because we have those ongoing (marketing, sales, accounting, logistics, etc.) systems in place internally it makes us a top performer.
I think a big question to ask is, is this a multi-unit franchise owner? This kind of question is okay to ask, and because chances are if they're multi-unit, they're gonna be full-time invested. It's not passive. They're in the business. They're working on all these things that Stacey and I worked on when we grew ours to 10 units in the first year. Because there's no way you're going to do that passively, so let's be realistic.
What's Your Next? - Podcast
 | Author BioI’m Stacey Riska aka “Small Business Stacey”, your franchise placement specialist. I help aspiring business owners find the PERFECT franchise so they can get to the next level in life and business. |
