7-step guide to buying a franchise
STEP FIVE
Do your own due diligence
By this stage you should have contacted and met with your target franchisors and commenced the meeting process that should be designed to ensure a meaningful exchange of information between franchisor and franchisee over six-to-nine weeks.
Regardless of the information the franchisor provides, you must develop your own view of the financial aspects and legal aspects of the business. Ensure you can answer the questions:
- Do I understand the revenue, expense and profitability for the business?
- Do I understand the contents and ramifications of the legal documentation?
Tip
Always test your assumptions against existing performance in the business and, when it comes to specialist advice, ensure there is a longstanding track record of working with franchisees rather than provide the opportunity for someone to broaden their resume.
STEP SIX
Get specialist advice
There are twp types of specialist advice that the best franchisees obtain: legal and accounting/financial. A franchisor is required to provide you a copy of the current Disclosure Document, Franchise Agreement and Franchise Code of Conduct and the banking facilities and financial commitment necessitate expert input.
Tip
You should engage a specialist franchise solicitor, accountant and banker with experience in both business and franchising, to provide expert input. There is no value in engaging a non-specialist. If you are not prepared to invest some money in quality advice, ask yourself why you are prepared to invest in the business at all? Speak direct to a banker that understands franchising to avoid compromising the process.
STEP SEVEN
Keep asking questions
A quality franchisor will be willing to answer all your questions and provide you with enough information for you to make a fully informed decision. You must be comfortable with every aspect of the business, so ask, ask, ask and keep on asking until you are satisfied.
Any franchisee must understand the responsibility to understand the business and make a fully informed decision. Franchising is not without business risk and the franchisor is not solely responsible for your success or failure. That obligation rests with you as the proprietor of your own business. It will be your job as a franchisee to ensure your franchise is profitable. If you cannot accept that responsibility you are not yet ready to make the transition to being your own boss.
Franchising has created billions of dollars in asset value around the world for millions of owner operators but only you can determine whether an opportunity is the right one.
–Adrian McFedries is the MD of DC Strategy (www.dcstrategy.com), the region’s leading specialist consulting and legal firm, with strategy, franchising, international and legal teams.
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I commend the 7 step guide in buying a franchise. I really campaign for the need of doing one’s homework by thorough researching. Franchising is not recession proof nor it guarantees 100% success rate. Transparency is vital in understanding how this kind of business model works. Also, how franchising can be suitable to your financial and personal needs. I strongly suggest that investors or even existing franchisees should capitalize on a reliable franchise guide book that has the SBA Failure Rate Book, Resource Book and Franchise Workbook compiled. In this manner, the failure rate will be minimized if not avoided completely.