Guide to becoming a franchisee: questions to ask first

Published Monday 30 March 2026

Table of contents

• Franchise reality check
• Becoming a franchisee can be hard
• What does a franchisee actually do?
• Are you suited to be a franchisee?
• Understanding franchise costs and fees
• Questions for the franchisor
• Questions for other franchisees
• Questions for a lawyer
• Questions for an accountant
• Xero helps you manage your franchise finances
• FAQs on becoming a franchisee

Key takeaways

• Conduct thorough due diligence by speaking with multiple existing franchisees independently, spending a full day with at least one to get candid insights about first-year challenges, financial realities, and operational difficulties that the franchisor may not disclose.
• Budget comprehensively for all franchise costs including initial fees (R50,000-R500,000+), ongoing royalties (4-8% of revenue), marketing fees (1-3% of revenue), equipment, inventory, and working capital reserves to cover lean early months.
• Engage experienced franchise lawyers and accountants before signing to review the agreement terms, understand exit clauses, debt obligations, and resale rights, while ensuring you have proper financial tracking systems for franchise-specific requirements.
• Assess your personal fit honestly by evaluating your risk tolerance, need for support versus independence, available capital, and willingness to follow the franchisor's systems rather than having complete business autonomy.

Franchise reality check

Franchise risks are the financial and operational challenges you face when buying into a franchise system, including the possibility of the agreement becoming an "onerous contract." If your franchise costs end up exceeding your revenue, you may need to recognise the loss immediately in your accounts. A good franchise can take some of the guesswork out of starting a business, but they're not failsafe. Here are the main risks to consider:

• High startup costs: You pay an upfront fee to join the franchise
• Staffing requirements: You likely need employees from day one
• Ongoing overheads: You have monthly franchise fees and payroll costs
• Demanding sales targets: You operate in a low-margin, high-volume business
• Limited control: You don't have complete autonomy over your business

Not all franchises are created equal. Some provide great advice, strong support, and proven business systems. Others sell you a logo and leave you on your own.

Becoming a franchisee can be hard

Successful franchises have high standards for franchisees. If their locations are consistently profitable and they provide strong support, they'll expect more from you in return. Common requirements include:

• Demonstrate business experience: Show you can manage operations and finances
• Bring industry experience: Understand the sector you're entering
• Embrace the brand: Act as an enthusiastic advocate for the franchise

If you join a successful franchise chain, you may have limited control over the business. Asking the right questions before you commit can help you avoid costly mistakes.

This guide covers questions for five key groups:

• Questions for yourself: Assess your personal fit
• Questions for the franchisor: Evaluate the opportunity
• Questions for other franchisees: Get real-world insights
• Questions for a lawyer: Understand your legal obligations
• Questions for an accountant: Plan your finances

What does a franchisee actually do?

A franchisee runs a business using the franchisor's brand, systems, and support. Your daily responsibilities depend on whether you're an owner-operator or hire a manager, but most franchisees handle similar tasks.

Typical franchisee responsibilities include:

• Daily operations: Opening and closing, serving customers, managing inventory
• Staff management: Hiring, training, scheduling, and supervising employees
• Financial management: Tracking sales, paying bills, and reporting to the franchisor
• Brand compliance: Following the franchisor's standards for quality and presentation
• Local marketing: Promoting your location within franchisor guidelines, which can involve complex promotions like loyalty programs that have specific accounting requirements. For instance, loyalty programs may have specific accounting requirements for how you record the value of points.
• Customer service: Handling enquiries, complaints, and building relationships

Some franchisees work full-time in the business. Others take a semi-absentee approach, hiring managers to handle daily operations while they oversee performance. Ask the franchisor what level of involvement they expect.

Are you suited to be a franchisee?

Becoming a franchisee requires significant financial investment, legal commitment, and hard work. Before evaluating any franchise opportunity, honestly assess whether this business model suits your personality, goals, and resources.

Ask yourself these questions:

• What level of support do I need? Consider whether you prefer figuring things out independently or want a franchise with detailed manuals and hands-on guidance.
• How much risk am I comfortable with? Franchising requires taking on debt for fees, equipment, and staff. Unlike starting as a sole trader, overheads are significant from day one.
• Do I trust the franchisor? Your franchisor can make or break your business. Check for court proceedings, speak to existing franchisees, and ensure you'll work well together.
• How do I want to run the business? Some franchisors allow flexibility while others set strict parameters. Make sure their management style matches your personality.
• How much can I afford? The first few months are lean. Budget realistically for launch costs, ongoing fees, and low initial revenue. Ensure you have enough cash or financing to get through.

Understanding franchise costs and fees

Franchise costs include upfront fees, ongoing payments, and operational expenses. Understanding the full financial picture helps you budget realistically and avoid surprises.

Here are the main costs to expect:

• Initial franchise fee: A one-time payment to join the network, typically ranging from R50,000 to R500,000 or more depending on the brand
• Royalty fees: Ongoing payments to the franchisor, usually 4–8% of gross revenue
• Marketing fees: Contributions to national or regional advertising, often 1–3% of revenue
• Equipment and fit-out: Costs to set up your location with required equipment and branding
• Inventory: Initial stock to launch your business
• Working capital: Cash reserves to cover expenses until revenue stabilises

Some franchises also charge technology fees, training fees, or renewal fees. Ask the franchisor for a complete breakdown before signing.

Build a detailed budget that accounts for all these costs, plus a buffer for unexpected expenses. Your accountant can help you stress-test the numbers.

Questions for the franchisor

Ask the franchisor detailed questions to assess whether they run a sustainable business. A good franchisor welcomes scrutiny and wants you to make an informed decision.

How's the business doing?

Start by requesting a summary of the business, including reports on sales, revenue, and growth. Ask to see forecasts and goals, but remember these projections aren't guaranteed.

Also check the bios of senior management to ensure they're reputable and experienced.

What's the outlook for new franchisees?

Once you understand the overall business, ask specifically about franchisee performance:

• Profitability: Are existing franchisees making money?
• Typical budgets: What costs should you expect?
• Revenue models: Do they predict revenue for new locations?

Not all franchises have this level of data, so answers may be vague. That doesn't mean they're a bad business, but you'll need to be comfortable with uncertainty before committing.

How strong is your data?

Franchisors often present market research and financial projections, but you shouldn't accept them at face value. Accounting rules can affect how revenue is recorded, so the numbers may not mean what you think. Validate the data by asking:

• Timing: When was the research conducted?
• Sample size: How many customers or stores were involved?
• Assumptions: What factors underpin the projections?

If you're not confident interpreting the data, take a copy to an accountant.

What are the main teething problems?

A good franchisor openly shares what new franchisees struggle with so you can avoid common pitfalls. If they can't give you specific guidance, it's a sign they may not prioritise franchisee success.

What are the key performance indicators (KPIs)?

Key performance indicators (KPIs) are the metrics that separate successful franchisees from those who struggle. The franchisor should have identified these through experience with multiple locations. Ask them to share these KPIs so you know what to focus on.

Can I speak to other franchisees?

Ask the franchisor to connect you with existing franchisees in similar locations to yours. Speak with several before making your decision. If the initial contacts don't seem relatable to your situation, request others.

Do you provide proven business systems?

Proven business systems reduce your learning curve and increase your chance of success. Check whether the franchisor provides established processes for:

• Recruitment: Hiring and onboarding staff
• Payroll: Paying employees accurately and on time
• Marketing: Promoting your location
• Customer service: Handling enquiries and complaints
• Health and safety: Meeting compliance requirements

It's even better if they offer automated systems for accounting, time-recording, inventory management, and customer relationship management (CRM). These tools save time and money.

How will growth be handled?

Territory protection matters. Ask whether you'll get exclusive access to your local market. You don't want another franchisee opening nearby and competing for the same customers.

Also ask about marketing support. Will the franchisor help you grow, and how will they manage expansion across the network?

Questions for other franchisees

Speaking with existing franchisees is some of the most important research you can do. Ask the franchisor for introductions, but also try to find franchisees independently. Franchisors typically connect you with their happiest operators.

Speak to several franchisees and try to spend a full day with at least one. This gives you time to build rapport and get candid answers.

How did you get through your first year?

Franchisees can share practical insights about early challenges that the franchisor may not mention. Compare their answers to what the franchisor told you. Similar responses are reassuring.

What are your KPIs?

A focused franchisee tracks key metrics. Their KPIs should largely match what the franchisor shared. If they differ significantly, ask why. Misalignment could signal communication gaps or inconsistent performance standards.

What are your big challenges?

Every franchise has challenges. Ask franchisees about:

• Financial problems: Issues that cost money or limit revenue
• Operational friction: Day-to-day difficulties running the business
• Franchisor relationship: Satisfaction with support and communication

Candid answers help you understand what you're signing up for.

Questions for a lawyer

The franchise agreement is the primary document governing your relationship with the franchisor. Don't just read it. Make sure you understand it.

Hire a lawyer with franchise experience. They know standard practice and can spot red flags after careful review.

Does this agreement say what I think it does?

Share your understanding of the agreement with your lawyer. Ask them to confirm whether the document supports your interpretation. Where your assumptions are wrong, clarify those points with the franchisor before signing.

What happens if things don't work out?

Plan for the worst before you sign. Ask your lawyer to explain:

• Exit terms: How do you get out of the agreement?
• Debt obligations: How will the franchisor treat money you owe them?
• Resale rights: Can you sell the franchise to someone else?
• Buyback terms: If the franchisor buys it back, what will they pay?

Many people don't read the agreement until things go wrong. By then, it's too late. Make sure you won't be financially ruined if the business fails.

Questions for an accountant

An accountant with franchise experience understands your specific tax obligations and business model. For example, if the business has a generous return policy, accounting standards may require that you set aside a portion of revenue as a provision for returns, affecting how much profit is recognised. It's even better if they have other clients in the same franchise network. They'll know the strengths and weaknesses of the business.

Ask them about:

• Finance structure: How to set up your business finances
• KPIs: Which metrics to track for success
• Tracking systems: How to monitor performance
• Automation: How to streamline payroll, point of sale (POS), and accounting data entry

Read our franchise accounting tips for more.

Xero helps you manage your franchise finances

Becoming a franchisee is a significant commitment. You'll work long hours, take on financial risk, and need genuine enthusiasm for the product and the parent company.

Use every bit of information you gather to make a smart decision. Get professional advice from a lawyer and an accountant before you commit. Include your research in your business plan to see opportunities and drawbacks clearly.

Once you're up and running, you'll need to track franchise fees, manage payroll, and monitor cash flow. Xero helps franchise owners stay on top of their finances with automated bookkeeping, real-time reporting, and easy payroll management. Get one month free to see how Xero can support your franchise business.

FAQs on becoming a franchisee

Here are answers to common questions about becoming a franchisee.

What does it take to become a franchisee?

You need sufficient capital for the franchise fee and startup costs, a willingness to follow the franchisor's systems, and the time to commit to running the business. Many franchisors also look for relevant business or industry experience.

How much does a franchisee typically earn?

Earnings vary widely by industry and brand. Profit margins typically range from 5–15% of revenue, with annual profits anywhere from R100,000 to R1 million or more for successful locations. Ask the franchisor for data on existing franchisee performance.

What are the different types of franchise arrangements?

The four main types are single-unit (one location), multi-unit (multiple locations), area developer (rights to develop a territory), and master franchise (rights to sub-franchise in a region or country).

How long does the franchise application process take?

Most franchise applications take two to six months from initial enquiry to signing the agreement. This includes due diligence, site selection, financing approval, and training.

Can I sell my franchise if I want to exit?

Most franchise agreements allow you to sell, but the franchisor typically has approval rights over the buyer and may have a right of first refusal. Check your agreement for specific terms and any transfer fees.