Questions to Ask at Discovery Day

Discovery Day or similar events are opportunities for prospective franchisees to learn about the franchise from the franchisor first-hand. At a typical discovery day, a prospect, who usually has already received a FDD and who has passed some preliminary thresholds, visits the franchisor’s headquarters and tours various departments and meets with personnel of the franchisor who interface with franchisees. Discovery Day is an opportunity for a prospective franchisee to ask questions and observe the franchisor first-hand.

It is important to keep in mind that for the franchisor, Discovery Day is a sales presentation and thus there is a natural tendency to make it a “feel good” experience. But it is also an opportunity to ask questions, and you should not be afraid to ask difficult questions or to get clarification.

The questions below are not legal advice but are based upon observations over years of experience. In general, you should try to gather as much information about the franchisor as you can before you go to Discovery Day. This means that you should have reviewed the FDD, talked to your lawyer, talked to your accountant and business advisors, and spoken to a number of franchisees. Obviously, if you do not receive the FDD until you go to Discovery Day, you will not be able to do this fully, but you still should ask as many questions as you can, and if you do not get the FDD until Discovery Day, you should make sure that you have an opportunity, later, to ask the franchisor questions, after you have reviewed it and gathered other information.

Important Questions to Ask

Inquire about why some Franchisees left the system? The FDD will contain a list of franchisees who have left the system. You should try to speak with some of those franchisees and establish why they left the system or were terminated. Then you should ask the franchisor for its side of the story with respect to former franchisees. Former franchisees can sometimes be a source of important information, particularly if it is negative information about the franchisor. On the other hand, some former franchisees simply did not comply with the franchise agreement or may not have worked at the franchise and therefore are not likely to give you useful insights.

What are the franchisor’s long term plans? If the franchisor is large, national company, you might be concerned about whether it has saturated the market and the extent to which there is room for growth. If it is a regional or local company, be careful of plans to expand rapidly. Another area of concern in this regard is whether the franchisor is considering selling out to another company or acquiring another company.

What is the franchisor’s view on franchisees owning multiple stores? If not why?

If there is an independent franchise association, does the franchisor recognize it and deal with it? Franchisors often have “franchise advisory councils” that are the franchisor’s chosen representatives to connect with franchisees. Franchisor advisory councils are not independent of the franchisor. Nonetheless, they appear to give the appearance of franchisee input into the system. An independent franchise association, by contrast, is a truly independent organization in which franchisees are free to develop their own positions and thoughts. Sometimes, franchisors do not recognize independent franchisee associations, and take the position that franchise advisory councils are the appropriate way to communicate with franchisees.

Does the Franchisor recognize an independent franchisee association? If the franchisor does not recognize an independent franchisee association, you should find out why from the franchisor, and then you should speak with someone from the association (which must be disclosed in the FDD) about their point of view on the subject.

Does the franchisor get many complaints? What is the way that the franchisor deals with complaints?

Has the franchisor ever terminated any franchisees? If so, how many? Why?