Key questions to ask before starting your small business

Published Monday 27 October 2025

Table of contents

• Franchise reality check
• Benefits of becoming a franchisee
• Financial requirements overview
• Understanding franchise documents
• Questions for you
• Questions for the franchisor
• Questions for other franchisees
• Questions for a lawyer
• Questions for an accountant
• Making your franchise decision
• FAQs on becoming a franchisee

Key takeaways

• Evaluate your financial capacity thoroughly before committing, as franchise ownership requires substantial upfront investment (potentially $130,000-$325,000), ongoing royalty fees up to 7% of weekly revenues, and 6-12 months of operating expenses as a financial cushion.

• Request comprehensive performance data from franchisors including profitability rates of existing franchisees, average earnings by location type, and detailed cost breakdowns to assess realistic earning potential rather than accepting projections at face value.

• Conduct extensive due diligence by speaking with multiple existing franchisees in similar markets, spending a full day with at least one to get candid insights about first-year challenges, key performance indicators, and ongoing support quality.

• Engage franchise-experienced legal and accounting professionals to review all documents, particularly the Franchise Disclosure Document (FDD) and franchise agreement, to understand your rights, obligations, exit options, and optimal business structure before signing any contracts.

Franchise reality check

offers proven business systems but comes with specific financial and operational challenges.

Key franchise risks:

• High startup costs: Initial franchise fees plus equipment and inventory
• Ongoing expenses: Monthly royalties, which for some franchises can be 7% of weekly Gross Revenues, plus marketing fees, and payroll from day one
• Performance pressure: Sales targets in typically low-margin, high-volume businesses
• Limited autonomy: Strict operational guidelines and brand requirements

Not all franchises offer the same level of support. Some provide valuable advice, strong support, and proven business systems, while others may offer less guidance, so it’s important to ask the right questions before you commit.

Benefits of becoming a franchisee

Buying a franchise can give you a head start in business. Instead of building everything from scratch, you get to use a business model that’s already working. Here are some of the main benefits:

• A proven business model: You’re investing in a concept that has a track record of success, which can lower the risk compared to starting an independent business.
• A recognizable brand name: Good franchises come with built-in brand awareness, which can help you attract customers from day one.
• Established operations: You’ll get access to established supply chains, operating manuals, and marketing strategies, saving you time and effort.

Financial requirements overview

Understanding the costs is a critical step before you commit. While every franchise is different, you can generally expect to cover a few key financial areas. Be prepared to discuss:

• Initial franchise fee: A one-time fee to get the rights to use the brand’s name and business model.
• Startup costs: The total investment needed to open the doors, which can include real estate, equipment, inventory, and signage.
• Ongoing royalties: A percentage of your revenue that you’ll pay to the franchisor regularly, often weekly or monthly.

Understanding franchise documents

Before you can become a franchisee, you’ll need to review some important legal documents. These are designed to give you a clear picture of the opportunity and your obligations. The two main documents are:

• The Franchise Disclosure Document (FDD): This document provides detailed information about the franchisor, the franchise system, and the fees you’ll have to pay. Franchisors are required by law to give you the FDD before you sign any contracts, but a U.S. Government Accountability Office report found many franchise owners were unaware of FTC’s guide on franchising.
• The Franchise Agreement: This is the legal contract between you and the franchisor. It outlines your rights and responsibilities as a franchisee. It’s a good idea to have a lawyer review this document with you.

Questions for you

Franchise ownership requires substantial time, money, and legal commitments. Before evaluating specific opportunities, assess your readiness with these key considerations:

Personal readiness assessment:

• Support needs: Do you prefer detailed guidance or independent problem-solving?
• Risk tolerance: Are you comfortable with significant debt and staffing obligations?
• Management style: Does structured oversight match your working preferences?
• Financial capacity: Can you fund startup costs plus 6-12 months of operating expenses?

Questions for the franchisor

Ask the franchisor plenty of questions to understand if their business is sustainable. A good franchisor will welcome your questions and be happy to provide clear answers.

How’s the business doing?

Request comprehensive business performance data to evaluate the franchisor’s stability and growth potential.

Essential documents to review:

• Financial reports: Current sales, revenue, and profit margins across locations
• Growth metrics: New franchise openings, closures, and system-wide trends
• Future projections: Realistic forecasts with clear assumptions
• Leadership credentials: Management team experience and industry reputation

What’s the outlook for new franchisees?

Franchisee performance data reveals the realistic earning potential and operational costs you’ll face.

Critical performance questions:

• Profitability rates: What percentage of franchisees are profitable after year one?
• Average earnings: Typical revenue and profit ranges by location type
• Cost breakdowns: Complete budget including royalties, marketing fees, and operating expenses
• Revenue models: Location-specific projections based on demographics and market size

Some franchises may not have detailed data available. If that’s the case, consider how much uncertainty you’re comfortable with before making your decision.

How strong is your data?

A franchisor may show you market research and financial projections but don’t accept it at face value. Make sure the data is reliable by asking:

• when the research was done
• how many customers (or stores) were involved in the study
• what the assumptions were

If you’re unsure about the data, ask your accountant to review it with you.

What are the main teething problems?

Common startup challenges reveal how well the franchisor supports new franchisees and identifies potential obstacles.

What quality franchisors share:

• Specific challenges: Detailed examples of first-year difficulties and solutions
• Timeline expectations: Realistic projections for profitability and cash flow positive
• Support systems: Training programs, mentorship, and ongoing assistance
• Red flag: Vague answers or reluctance to discuss franchisee struggles

What are the key performance indicators (KPIs)?

The franchisor should share what separates successful franchisees from others in the form of key performance indicators (KPIs). These will be three to five key things that, if you get them right, will greatly increase your chance of success.

Can I speak to other franchisees?

The franchisor should introduce you to existing franchisees. Ask for franchisees who are in similar locations to yours. You’ll want to speak with those people before becoming a franchisee yourself. Don’t feel obliged to accept the first list of contacts they give you, if you don’t think those franchisees are in a relatable situation.

Do you provide proven business systems?

See if the business has established processes to guide you through things such as:

• recruitment
• payroll
• marketing
• customer service
• health and safety

It’s even better if they give you access to automated systems for things like accounting, time-recording, payroll, inventory management and customer relationship management, though these often come with required costs, such as an ongoing monthly fee of $275 noted in one example FDD. Efficient systems for these business functions can save you a lot of time and money – and increase your chance of success.

How will growth be handled?

Will the franchisor provide good marketing support to help grow the business? And when growth happens, how will the franchisor manage it? You probably don’t want another franchisee to move in across the road, so see if you’ll get exclusive access to the local market.

Questions for other franchisees

Ask the franchisor to introduce you to existing franchisees in the network. Speak to several and try to spend a full day with at least one of them. This will give you enough time to establish a good relationship and get candid answers to your questions.

Franchisors often introduce you to franchisees who have had positive experiences. Try to connect with a range of franchisees to get a balanced view. This research is valuable before you become a franchisee.

How did you get through your first year?

This is like the 'teething problems' question you asked the franchisor. It’ll be reassuring if the answers are similar but you might get some more practical insights from the franchisee.

What are your KPIs?

If they list just 3–5 KPIs, you’ll know you’re dealing with a savvy, focused business. The franchisee should give you many of the same KPIs as the franchisor.

What are your big challenges?

Ask franchisees about the challenges they face and how they overcome them. Focus on issues that could affect your revenue or costs, and ask about their experience with the franchisor’s support and communication.

Questions for a lawyer

Professional legal review is essential because the franchise agreement defines your rights, obligations, and exit options.

Legal review process:

• Hire franchise specialists: Attorneys experienced with franchise law and industry standards
• Document analysis: Complete review of franchise disclosure document (FDD) and agreement
• Risk assessment: Evaluation of termination clauses, non-compete restrictions, and dispute resolution
• Cost-benefit analysis: Fee structures, territorial rights, and renewal terms

Does this agreement say what I think it does?

Share your understanding of the agreement with your lawyer. Ask if the document matches your expectations and clarify any differences with the franchisor.

What happens if things don’t work out?

It’s important to plan for all outcomes. Ask what happens if you want to exit the business, how debts are handled, and whether you can sell your franchise or if the franchisor will buy it back.

Review the agreement carefully before you sign. Make sure you understand your options if you have concerns, and know how to protect your finances in any situation.

Questions for an accountant

Franchise-experienced accountants provide specialized knowledge of tax obligations, financial structures, and industry-specific challenges.

Ideal accountant qualifications:

• Franchise expertise: Experience with franchise tax requirements and business structures
• Industry knowledge: Familiarity with your specific franchise system or similar businesses
• Service offerings: Business structure optimization, KPI tracking, and automated systems integration
• Network connections: Existing relationships with other franchisees for benchmarking and insights

Ask them:

• how best to structure your finance
• what key performance indicators to use
• how to track those KPIs
• how to automate business functions like payroll, POS and accounting data entry

Making your franchise decision

Successful franchise ownership requires genuine commitment beyond perceived safety and demands significant time investment and brand enthusiasm.

Essential success factors:

• Product passion: Genuine belief in the franchise’s products or services
• Time commitment: Willingness to work extensive hours, especially during startup phase
• Brand alignment: Comfort representing and promoting the franchisor’s values and methods
• Long-term vision: Clear plan for growth, additional locations, or eventual exit strategy

Use all the information you gather to make an informed decision. Add these details to your business plan to weigh the opportunities and challenges. Get professional advice from a lawyer and an accountant before you commit.

Plan for what happens after you’re up and running. Will you buy another location, stay in your current one, or sell? Make sure your plan is financially sound.

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FAQs on becoming a franchisee

Still have questions? Here are answers to some common queries about becoming a franchisee.

How do you become a franchisee?

To become a franchisee, you generally:

1. Research different franchise opportunities
2. Submit an application to the one you choose
3. Review their Franchise Disclosure Document (FDD)
4. Secure financing
5. Sign the franchise agreement

How hard is it to become a franchisee?

It can be competitive, especially for well-known and successful brands. Franchisors look for candidates with solid business experience, financial stability, and a passion for the brand. The more prepared you are, the better your chances.

What are the typical franchise fees and costs?

Costs vary widely, but you can usually expect an initial franchise fee, startup costs such as equipment and inventory, and ongoing royalty fees. The Franchise Disclosure Document (FDD) will provide a detailed breakdown of all expected costs.

How long does it take to become a franchisee?

The timeline can range from a few months to over a year. It depends on the franchisor’s process, how quickly you secure financing, and how long it takes to find and prepare your location.