Franchising Library
The Real Power in Franchise Validation
What is Validation?
In a nutshell it’s a method used to check up on a franchise to determine if they’re delivering on their promises, supporting their franchisees properly and are offering a truly viable and successful opportunity. All franchisors’ disclosure documents include the contact information for all other franchisees in their system, both current as well as franchisees who have gotten out of the business within the last 3 years.
Most franchisors require that you spend a good bit of time speaking with other franchisees but even if they don’t require it – DO IT! These franchisees have nothing to gain or lose by your decision to purchase that franchise therefore have no reason to give you anything but honest answers about their experience owning that franchise.
Many franchisors will give you a “suggested validation list” of franchisees to contact but keep in mind this is commonly a cherry picked list of satisfied, top producing franchisees. Use the contact list in the disclosure document and make it a point to speak with a range of franchisees including top producers, struggling franchisees, those that have owned their business for many years and those that are fairly new to the system. You want to get feedback from those in all phases of owning their business as you too will experience these different phases as well.
All franchisees have gone through the validation process themselves so they’ll understand why you’re calling and for the most part be happy to speak with you and share their experience. That being said, understand they’re most likely busy running their business so be respectful of their time. Be willing to speak with them at their convenience outside of business hours or at least during slower times of their day. If there are franchisees within driving distance of you, it’s also a good idea to offer to make the trip and take the franchisee to lunch or dinner for a face-to-face meeting. I would advise you to make a point to speak with 10–20 franchisees during your validation when possible.
General Questions to Ask When You Validate
No business is right for everyone so never forget that one man’s trash is another man’s treasure. Below are some good questions to ask other franchisees during your validation process:
What did you do before you invested in this franchise?
What other franchises did you explore before making your decision to go with this one?
What were your key reasons for choosing this franchise over the others you were exploring?
How long have you been in business?
Do you feel your initial training adequately prepared you to launch your business?
Did the franchisor provide adequate support during your grand opening and launch phases?
How often are you in contact with the franchisor?
Are you pleased with their efforts to continue to support you as a franchisee?
How often are you in contact with other franchisees?
Do you find the other franchisees in the system to be of value to you in achieving success with your business?
Do you feel the franchisor is doing a good job of recruiting top quality franchisees?
What more could the franchisor be doing to help you be more successful with your business?
What have been your biggest headaches and challenges to running this business?
What do you feel it takes to be a top producer with this franchise?
What advice would you give me as a new franchisee just starting out?
Financial Questions to Ask When You Validate
Also keep in mind when talking numbers that people structure their businesses in different ways. Some pay themselves salaries, drive company-owned cars, take frequent business trips and work out of posh office space, while others take only dividends or distribution and operate the business on as lean of a budget as possible.
Be prepared for a wide range of methods and responses when discussing the financial picture of a particular franchise. These questions will also vary depending on which phase of the business a particular franchisee is in.
What can a typical franchisee expect to produce in gross revenues in year one, year two and year three of this business?
What are the top producers doing in gross sales?
What are the lower producing franchisees doing in gross sales?
Currently what is your gross revenue and how much of that is going into your pocket?
How long did it take to break even for you?
How accurate were the franchisors operating capital projections? Did you spend it all? Did you need to go into pocket for more?
What are the typical cost percentages of sales? Labor? Occupancy and other overhead?
Assuming a franchisee is running a fairly streamlined operation what should I expect typical margins to be before taxes, debt service, etc?
And Of Course the Big Question…
If you had it to do all over again, would you?
Filtering Your Responses
Negative feedback will resonate more with you than positive, that’s just human nature. Focus on the overall percentages of your feedback from everyone you speak with and rate the franchisor accordingly. Look for trends more than specific experiences to get a sense of overall franchisee satisfaction.
Reading Between The Lines
On the other hand, if you find you’re more like the less than satisfied franchisees who are the under achievers of the group, then there’s a chance that particular franchise may not be the right opportunity for you. We all have strengths and weaknesses and finding the franchise that best leverages your strengths while compensating for your weaknesses is critical.