From due diligence to self-evaluation, these are the steps to take before diving into the franchise industry.
Due diligence; it’s a term often heard in the world of franchising and has been considered a necessary course of action for anyone in the industry. That supposition is completely correct.
Buying a franchise is a huge step in any businessperson’s career, and to ensure that you have found a truly perfect opportunity, due diligence must be performed. Truth is, there is a vast array of “great” franchise opportunities out there; the key is finding the right one for you. Here are ten tips for doing just that.
Conduct a self-evaluation. Are you ready for this? What exactly do you want to achieve by owning a business? Spend some time exploring the many facets of running your own business and how they will affect you personally.
Evaluate financing options. How much can you afford? What is your net worth and liquidity? Before beginning the search for your next opportunity, be sure to clearly identify how much money you are able and willing to invest in your next venture.
Begin market research. Reach out to trade associations for the operational view of the type of franchise you are interested in. Even resort to Google; use the vast informational resources that exist to gain more insight into your potential market.
Seek professional advice. Franchising has been around a while—since 1851 (See what we did there?), in fact. There are hordes of franchise experts in the forms of consultants, accountants, solicitors, etc. that are happy to help you in the decision-making process.
Read the FDD. Let’s imagine you found the perfect franchise opportunity for you. What’s next? One of the most important pieces of a franchise is the FDD (Franchise Disclosure Document). The FDD will quickly become your most trusted ally.
Under the Franchise Rule, the Federal Trade Commission requires that you receive the FDD 14 days prior to signing any contracts. The FDD will contain information regarding franchise fees, available training, rules and restrictions and any vital information to operating a franchise.
Perform a franchise growth assessment. Looking at the growth of a franchise over a certain period of time can reveal a great deal. Rapid growth can give the impression that a system is successful, but what if it is just a fad? Will it be another new trend that loses its novelty within a couple of years? If a franchise has been operating for decades with a steady growth incline, you know it’s a proven model.
Talk to current and former franchisees. The best insight into any business is from the people currently running it. Find out the successes they have had. If you speak with a former franchisee, find out why they left and what they liked and disliked about the business model. A couple of thoughtful questions can save you heartbreak in the future.
Determine franchise Involvement. Is the amount of support you will receive from the corporate office pertinent? Will they want to micro-manage everything you try to do? Do you want a hands-on company, or do you want to run this as your own business? These are questions that current franchisees would know the answers to.
Define an exit strategy. The exit strategy is an oft-forgotten part of a business plan. You need to decide your business’s timeline. Will you stay for five years and run? Is this a business you want to pass on to a family member after you retire? Be sure that your franchise model accommodates these long-term plans.
Define a work/life balance. Do you want to be the face of your new franchise opportunity, or would you like to take a less hands on role in the day-to-day aspects of the business? Educate yourself on how demanding a potential opportunity will be before you decide on taking that next step.