5 Tips for Completing Your Due Diligence

By KATE AOUEILLE Never tell Steven Corp, vice president of franchise sales for Moe’s Southwest Grill, that you think diversifying your portfolio by becoming a franchisee would be fun. On several conversations, Corp explained that many potential prospects did not understand the emotional investment level required to open a business. Following a thorough due diligence process will dramatically increase a prospect’s chances of not only succeeding in the franchising industry, but also picking a segment that aligns with their personality and goals. Below are five tips to consider for individuals looking to take the jump. Develop a Deep Understanding of the Opportunity: A lack of understanding on the investment level is a major factor in determining whether franchisees struggle or fail. In order to protect yourself against this pitfall, start by asking yourself why you are interested in franchising in this segment of the industry and determine whether or not you are ready. Once you feel confident that your answers validate your questions, think about the next step of the process. Read and Absorb: Regardless of the segment of the franchise industry you are considering investing in, you have one free, extremely valuable tool, at your disposal: books. Reading books on the industry can provide you with key insight from experienced professionals, giving you a well-rounded and deeper understanding of the ins and outs of the industry. Eric Bell, director of sales and service for Franchise Gator, suggests The Educated Franchisee by Rick Bisio or The E-Myth by Michael E. Gerber. Speak with ALL Franchisees: Part of the process is speaking with franchisees, from The Franchisee of the Year and current franchisees in your local market, to multi-unit franchisees and franchisees who have failed. Come prepared with a list of direct and to-the-point questions. “They [franchisees] are your best source for honest information,” said Randy Trotter, President of Horizon Franchising, VP of franchise development for Workout Anytime as well as an area developer for Boneheads. Align Your Business and Your Passion: “Everyone wants to make money, but make sure money isn’t your primary driver,” said Khursheed Ahmad, multi-unit franchise owner of Checkers Drive-In Restaurants. He added, “I love by business and am extremely committed to its success.” Without a strong commitment and passion for your franchise, you will eventually feel frustrated and stuck. Imagine yourself in 10 years: if your business is still your partner, you have found the right fit. Assess Your Investment Level: “Many franchisees undervalue the financial investment needed to get them through the startup period,” said Terry Corkery, President and CEO of Franchise Works. Upon reviewing the FDD, many experts in the industry suggest meeting with a financial consultant. They will educate you on the full investment level required to open your franchise and sustain for it for the long haul. You should be an expert on your brand and the industry. Only five percent of franchises fail within the first year, according to the U.S. Department of Consumer Affairs. Make sure you’re not one of them.