10 Essential Questions for Franchise Due Diligence
Franchising, Due Diligence
10 Questions to Ask Current Franchisees Before You Sign
In the final stretch of franchise due diligence, validation calls with current owners are your most valuable reality check. Go in with a focused list of questions, listen carefully, and compare what you hear to the Franchise Disclosure Document (FDD) and the franchisor’s sales pitch.
How to Find Franchisees to Call
Start with Item 20 of the FDD. It includes a contact list of current and former franchisees. This list is there so you can verify the franchisor’s claims. Do not rely only on a “handpicked” list from the sales team. Instead:
Randomly select several current owners in markets similar to yours.
Call a mix of newer (under 2 years) and mature (3+ years) locations.
Reach out to a few former franchisees to understand why they left.
Treat the Item 20 contact list as your primary source for unfiltered field feedback.
10 Targeted Questions for Your Validation Calls
What were your real startup costs versus what was projected? Ask for a ballpark total, then where they overspent: buildout, equipment, working capital, marketing, or permits. Compare their numbers to Item 7 of the FDD. Consistent overruns are a red flag.
How long did it take you to break even? Get a specific timeframe and clarify whether they mean cash-flow or full payback of initial investment. Ask what had the biggest impact on reaching break-even: location, sales skills, local competition, or franchisor support.
How accurate were the franchisor’s financial expectations? Even if there is no Item 19 earnings claim, the sales team likely painted a picture. Ask whether reality has been better, worse, or roughly aligned with what they were led to expect.
How would you rate the quality of training and ongoing support? Separate initial training from ongoing help. Ask: Did training actually prepare you to open? When you call with a problem now, how fast and how well do they respond? Are field visits helpful or just box-checking?
How much time do you personally work in the business each week? Get a real number, not a range. Clarify how much is spent on operations versus marketing, staffing, and management. This tells you if the “semi-absentee” story holds up or if owners are actually grinding 60+ hours.
What surprised you most after opening? This open-ended question often reveals hidden costs, staffing challenges, or local marketing realities you will not see in the FDD.
How is the relationship between franchisees and the franchisor? Ask about communication, responsiveness, and whether franchisees feel heard. Listen for comments about frequent changes, fees, or strained relationships.
Would you buy into this brand again, knowing what you know now? This is the core question. If they hesitate, ask why. If they say yes, ask what they would do differently—location choice, staffing, capitalization, or their own involvement.
What do you see as the biggest risks over the next 5 years? You are a serious investor; you should hear their view on competition, technology, regulatory changes, and the franchisor’s financial strength.
If you left the system, what would be the main reason? Even happy owners have limits. Their answer exposes potential deal-breakers before you wire a franchise fee.
Why Former Franchisees Matter Just as Much
Former owners listed in Item 20 are often the most candid voices you will hear. They are no longer financially tied to the brand, so they can speak freely about:
Why they closed or transferred their unit.
Whether the franchisor tried to help before things went wrong.
What they wish they had known before signing.
Consistent themes from ex-franchisees—poor support, unrealistic projections, constant fee increases—should carry significant weight in your decision.
Get Expert Help Interpreting What You Hear
Validation calls are only as useful as the questions you ask and how you interpret the answers. A seasoned franchise consultant can help you frame the right questions, spot red flags, and reconcile what franchisees say with the FDD and the franchisor’s story. Before you sign anything, work with a consultant to prepare for your calls, debrief afterward, and decide whether the opportunity truly fits your capital, risk tolerance, and goals.
