How Do You Do Due Diligence with a Franchisor?

Before signing on the dotted line with a franchise, it is imperative to do the proper due diligence, which means conducting the research required to get a full understanding of the brand and the franchise requirements. A major part of this process will be handled alongside the franchisor, whether it be during the onboarding, discovery day or beyond. Becoming a franchisee is as much of a financial investment as it is a personal investment, which is why it is essential that the franchisee and the franchisor are on the same page from day one. Asking about plans for the future, support infrastructures and growth potential for the brand’s concept are all pieces of information that franchisees are entitled to. 

So, what can prospective franchisees expect when doing their due diligence with franchisors? Joe Lewandowski, director of operations for Caring Transitions, a senior home-relocation concept under the Strategic Franchising Systems umbrella, says their team starts teaching prospects about the concept as soon as they fill out the questionnaire found on the brand’s franchise development website. 

“From there they go through the sales process,” Lewandowski said. “We have several franchise directors that help select which Strategic Franchising Systems franchise is best for each candidate. They will tell them what each of the brands is all about and help them make the decision if it is right for them.”

When it comes to doing due diligence with a franchisor, Lewandowski says franchisee prospects should come to the table ready to answer two main questions: Why are they going into business, and what do they want to accomplish with the franchise?

“We define those answers and then work the plan backward,” he said. “If they want to retire in 10 years and have someone else run the business, we will see what their staff needs to be, the scaling required, etc. We start it from day one. Knowing where they want to be helps put together that roadmap to help them accomplish those goals they are setting out to achieve as a franchise owner.”

Once a prospect feels comfortable signing on the dotted line with a brand, they will likely work with a coach to help walk them through the onboarding process. In the case of Caring Transitions, for example, Lewandowski says candidates are paired with a dedicated coach that works with them on designing everything involved in the business plan. “We have a four-week process for onboarding and all the different tasks that need to happen, whether that be setting up insurance, the LLC or anything else,” he said.

Joshua Johns, director of marketing for business and sales coaching concept The Growth Coach, says it is important that new franchisees come into the onboarding process with an open mind. “Just because you did business a certain way before, doesn’t mean it will be the same way we suggest you do business moving forward,” he said. “Prospects should be ready to adopt new processes and should be eager to follow a proven system.”

Throughout the onboarding process, candidates should aim to meet the leadership team and chat with them one-on-one to learn about the company’s vision and business philosophy. Whether it is during a discovery day or a separate phone call, try to find out where the brand and industry are going and how they plan on staying relevant. 

Candidates also shouldn’t be afraid to ask franchisors the tough questions. For example, when reading the FDD, be sure to check out data relating to franchise growth in Item 20 to gauge the scalability of the business, and ask questions if there is any litigation listed in Item 3 of the FDD.

Lastly, speak to at least 10 established franchisees for validation — franchisors might have a list of recommended franchisees to speak to, but break out of the habit of only contacting these individuals to ensure their stories line up with those told by the team.

Overall, when contemplating buying into a franchise system, entrepreneurs need to be confident that they are joining a team that will support their specific goals and align with their core values. That is why talking to the franchisor and doing research alongside them is an essential part of the due diligence process.