The key to buying a franchise is the process of Due Diligence. This is true for both, the Franchisor and the potential franchisee. This is the process majority of candidates often overlook.
Buying a franchise is different from buying almost anything else, even from buying an existing independent business. The key to due diligence in the process is the Franchise Disclosure Document (FDD), earnings claims (if available) and the ability to speak to current and former franchises.
Speaking to the current franchises is especially important. A solid franchise or a savvy franchise consultant can provide you with a number of tips on how to go about finding the best information. Often, potential candidates say that they are not comfortable in asking the tough questions. They don't want to "bother" people in finding out the intricacies of financials and all the details on operations. This sentiment is understandable, but in order to make the right choice when buying a franchise you have to get as much detail from the franchisees in the system as possible.
During the process of due diligence I recommend organizing the data collected. The best way to do this is to build a spreadsheet to track all the variables of the business. Each franchise the candidate will talk to will have specific circumstances which apply to their particular situation. However, with proper preparation, after speaking to 5, 10 or even 20 franchisees, similarities will emerge and all the process will start to make sense.
At the same time, in addition to learning more about the franchise company, the candidate will gain the understanding of the numbers and operations of a franchisor which will come very handy when putting together a business plan, applying to financing or verifying your findings with your accountant.
Keep in mind that during this process, the franchisor will also perform due diligence on their candidate. The best companies don't sell their concept to just anyone. They have a lot at stake in bringing in the right people and will invest significant resources to minimize their risk. Successful franchise systems will offer their business model only if they think that the candidate fits their profile.
In the end, due diligence is the key to finding the right franchise business. It takes time and effort, and the majority of people who want to buy a franchise have no experience in doing it. However, if the potential franchisee has a plan and is well prepared and organized, doing due diligence will help avoid costly mistakes.
0 comments:
Post a Comment