BUYING A FRANCHISE
Buying a franchise may be the best financial investment you ever make, but it is not something you should enter into without plenty of due diligence. You have probably read the franchisor’s website and talked extensively to the franchise salesperson. But there is much more you need to do before you make the biggest financial decision in your life.
What Due Diligence Should You Do?
There are many things you should do to protect yourself from a bad investment. Listed below are only a few:
Get and read the franchise disclosure document (FDD). This document is lengthy and is broken down into 23 sections called items. Each item describes information about the franchise, including the nature of the business, the relationship between the parties, information about the principals of the franchisor, an estimate of your expenses, the amount of your investment, contact information for current franchisees and the legal status of the trademark, among others.
Assemble your own team of professional advisers. Don’t do this alone. You need a team to protect you and advise you. Integral to this team are a franchise attorney, an accountant and other business advisers.
Do your due diligence. That is, research, research, research. Call the 100 nearest franchises listed in the FDD and start asking detailed, probing questions regarding the profitability of the business, whether they are satisfied with their purchase and what the relationship is like between the franchisor and the franchisee. Don’t waste your time calling and asking “are you happy” or “would you do it again”. Insist on specifics, numbers, and details. If they decline to talk, you should assume they either failed or are failing. We would be happy to suggest other appropriate due diligence activities for you.