So, you have made the decision to buy a franchise restaurant—This was probably a well thought-out but time-consuming decision. You presented your offer, cheered when it was accepted, worked with a bank to secure the loan, and then completed your due diligence period. You are almost the owner of a franchise restaurant!
After completing all that you have started the application process with the franchise, received the Franchise Disclosure Document (you know—that difficult-to-read, 300+ pages of mostly legalese document?), and now it’s time for your scheduled Day of Discovery. This is the day you and other franchise candidates will meet with the franchisor and ultimately decide if this is the right franchise for you.
The first thing you need to know is that this day is not just for you to discover whether or not this is the right franchise for you but it also the time that the franchisor will decide whether or not you are a good fit for the brand. Here are a few general reminders of what you should do before attending a Day of Discovery:
- Read and understand the FDD and it’s attachments. Discuss any concerns with your attorney as this document all the information about the franchisor in it.
- Be prepared. Talk to as many franchisees as you can before your day of discovery, you can ask them more direct questions about profitability, franchise support and overall if they feel the franchise is a good franchise and are they happy with their decision to be a franchisee.
- Talk to those that have left the system and ask why. It’s good to know the good and bad about a franchise.
Franchise Restaurants Day of Discovery - The DO's
Now that you are ready to move forward, let’s start off with some Do’s— the things you should do and ask during your Day of Discovery.
Do dress, appear, and act professionally. Ask what the dress code is prior to your visit. Will there be any social activities prior to the day of discovery, like a meet and greet the night before at their recommended hotel?
Do ask questions regarding the transfer process. Are you transferring the remaining years of the agreement (typical), or is the transfer a new franchise term (rare)?
Are there any required upgrades and/or improvements on the horizon coming in the next few years? Décor upgrades, POS/computer upgrades, signage changes or a change in their logo? What changes and/or upgrades have been required in the previous few years? Many franchises have in their agreements a maximum amount that they can require a franchisee to spend on upgrades and improvements, so you should be aware of that number.
Are there litigations in Item 3 of the FDD? If there is what appears to be excessive or large litigation in the FDD (Item 3) ask about it.
Are there any other fees (Item 6) a franchisee should be aware of? Make sure you have a full understanding of how all the fees are allocated. What is the make-up of the total marketing fees? Some franchises will have a portion of the marketing fees go to the creation, production of all marketing materials to be used for marketing the brand. This could be TV commercials, menu boards creative, window cling creative etc… It could also go to the cost of a celebrity spokesperson, cost of an outside marketing firm or even to pay the salaries of the marketing department. This amount is typically 1-2%.
How much of the fee goes to the implementation of the marketing? TV, mailers etc… This part of the fee is typically 2-5%.
Lastly, how much will you be required, if any, outside of the marketing fees to be spent locally?
Do ask about training. What are their expectations of you, and what is their franchisee training program? Is there any additional training or support available after the transfer has taken place?
Understand the territory you will have in your agreement. Is there opportunity for growth in your market area?
Do ask questions regarding Item 19 Financial Performance. What’s included in these numbers? What’s not included? It may only include numbers from their company operated restaurants (typical). It may only include numbers from a percentage or a portion of their restaurants. In rare cases, it may include financial representations of their franchisees. Note they cannot and will not give you any breakdown of costs or answer any questions pertaining to “what you can expect” your costs to be.
Many times, during a day of discovery, the department heads will give a small presentation on what their department does to help support you as the franchisee. If at all possible, introduce yourself before or after their presentation as these are the people you will be working with the most moving forward after your approval and transfer of the restaurant.
Franchise Restaurants Day of Discovery - The DON'Ts
Now we have covered many of the Do’s, let’s discuss the Don’ts...
Don’t be “that” person. You know, the one that takes over the meeting to make themselves appear to be the most important person in the room and that their questions and concerns are more important that everyone else’s—don’t be them. There will be other potential franchisees in the room and their questions and comments are also important, so listen to them you may learn from the other candidates in the room.
Don’t ask questions or make statements that may be taken negatively. For example, the wrong way to ask about the direction of the company would be “I disagree with the direction you have gone. Why did you do that and how are you going to change it?” A better way would be “Can you tell me about the direction of the company past, present, and future?”
Don’t tell a franchisor that your plan is to operate the restaurant short term and become absentee or that you want to be an absentee owner. Most franchisors are looking for franchisees to be hands on and involved in their business on a daily basis. In fact, some franchises discourage hiring a general manager for a single store franchise.
Don’t ask what you could expect your food or labor costs could be or what you can expect your profits to be. This is called an earnings claim and, by law, they cannot disclose those expected numbers to you.
Don’t compare and question how the franchisor does things to “how you used to do it in your previous operation.” The last thing a franchisor wants is someone that questions the validity of their franchise model.
Don’t use this as an opportunity to give them your ideas of what they should do. Don't tell them how to market, design their restaurants, or operate their restaurants. The time for idea sharing will come later in your franchise restaurant journey.
Don’t show up late or ask to leave early. Don’t leave the meeting to answer or make an “important” call as this can be disruptive to the other franchise candidates and disrespectful of your franchisor's time.
You would think that many of the do’s and don’ts would be common sense, but, before I was a Certified Restaurant Broker, I was part of the Day of Discovery for a large franchisor, where I saw and heard all of the above.
The Day of Discovery is many things: it is a place to put faces with names, an opportunity for potential franchisees to ask questions and get clarification, and—ultimately—it is where they can decide if the franchise restaurant brand is right for them.
Everyone should walk away with a better understanding of the direction they want to go after their Day of Discovery and feel good about that decision.
As an old large multi-unit franchisee told me many years ago…
“There are only three things you need to know about a franchise.
- Is the franchisor making money?
- Are the franchisees making money?
- Are the franchisees happy with the franchisor?
If the answer to all three is yes, then it’s a good franchise”
When you are on the path to restaurant ownership with a franchise restaurant, equip yourself with this information to get the most out of your Day of Discovery. If you are looking for more opportunities to invest, browse franchise restaurants for sale to see available listings on our website. Be sure to download our free guide on Franchise Resales to learn more about these restaurant opportunities as well.
Don Mason, Certified Restaurant Broker® is the multi-unit Franchise Partner for Hillsborough and Pinellas Counties in Tampa Clearwater/St Pete Florida. Don has been part of the restaurant industry for 35 years starting as a franchisee with Fuddruckers World’s Greatest Hamburgers. In recent years Don has been a Franchise Business Manager with Firehouse Subs in Jacksonville Florida and Director of Franchise Sales and Regional Manager for the largest Firehouse Subs Area Representative based in Charlotte NC that included GA, NC, SC and Eastern TN.