Franchise Due Diligence
I have seen a number of articles talking about the 3 reasons that franchises fail, or the 7 reasons or the 5 reasons or whatever number of reasons that cause franchises to fail. Franchises can be quite complicated, and certainly anyone going into a franchise quickly learns that there are a very large number of factors to be concerned about, practically any one of which could lead to failure.
That being said, here are some of the more salient factors I am concerned about when we are helping a client consider buying a franchise.
Education
Before anything else, I start a new client who wants to buy a franchise, by telling them: “Stop. We will not be looking at any specific franchise yet. Learn all you can about franchising… Take your time… Educate yourself. When you actually start looking at a franchise, you will barely have enough time to assess the franchise, even with our help, and you will be lost without a good grounding.”
Readiness
After I am certain a client has educated themselves sufficiently (this may take weeks, or even months), I then ask: “Do you want to be in this business? Are you ready to invest your own money? Are you ready to borrow more money if need be? Do you have enough money to last what may be many months and can cover all the costs of looking at a number of different franchises, traveling, hiring attorneys, accountants and specialists? Do you then have enough money to last until the franchise turns profitable for you? Are you ready to put all your time and energy into the franchise? Do you know how to hire people? Do you know how to manage people? Can you handle working in a restrictive fashion, following all the rules, working for someone else’s brand? Will you have a partner? Are they fully capable in all the areas needed? Can you work well with your prospective partner? Do you work well with people, especially the public? Do you realize you will have to stay on top of many different things, such as employment law, banking, various kinds of insurance, corporate taxes, bookkeeping, marketing & sales, and on and on? Are your expectations of returns, quality of life, etc. realistic? How long can you last without an income until you can take out a regular income? Is your family ready to be put with barely seeing you for a long time, and if and when they do, how well will they put up with you most likely to be sleeping, or getting up in the middle of the night to work on paperwork, etc., etc., etc.?” There are lots more questions but I think you get the point.
If I am satisfied that the client is truly ready for all this fun, and their family is also totally ready to put up with all of this, then we can get into the basics.
Professional Members of the Team
Anyone getting into franchising will need a competent attorney, specifically skilled in franchise law, preferably with at least 10 years experience. A competent accounting firm, also with significant franchise experience, will also be required. Additional professional services people may be required in the specific arena of the franchise market space. If you don’t have a very good franchise attorney and an excellent accounting firm, we will not work with you.
The time to find these people is now, long before the first franchise is looked at. Meet several attorneys, several accountants, and several in each of the specialty professional services areas that may be needed. This is a critical part of your education, and of course building the team necessary to properly handle all the aspects of franchising.
Charles F. Bacon, CEO & Keeper of the Vision
charlesbacon(at) superdiligence (dot) com
Due Diligence, Inc.
www. superdiligence (dot)com
