Top tips for doing your due diligence

 

Doing research before signing into a franchisee considerably lowers the risk you take when becoming a business owner. 1851 compiled our top tips for performing your due diligence.

Speak to current and former franchisees

It’s important to speak to a whole bevy of individuals when doing your homework. Franchises might have a list of recommended franchisees to speak to – break out of the habit of only contacting these individuals. Speak to those who have left the system to get their perspective and experience with the brand. A good rule of thumb is to call 10-15 franchisees.

Read the FDD, then read it again. Then read it again

This is one of the most important documents you can get to know. The FDD becomes your best friend when buying a franchise and contains invaluable information about the brand, its successes, its failures and holds a lot of information about the potential future you can have if signing on as a franchisee. Write down questions and concerns and address them with the franchisor.

Research industry trends

You want to know what segments are doing well and why. Research what services are in stable categories and what are “up-and-coming.”

Check for expertise

Who is the CEO of the franchise? Who is the marketing director? What did they do before joining the franchise executive team? Know the ins and outs of the managerial team of a franchise. Look at their past achievements and the successes of their past employers.

Comparing is king

Don’t commit to one franchise without doing a comparative analysis with other brands in the same industry. The more information you have, the better off you’ll be in the long run. This analysis can help shed light on different systems and industry standards, allowing you to make a more informed decision.

Understand everyone’s roles

It’s important to know what each individual in a company does. Understand what a marketing director does, what a vice president of franchise development does, etc. This will help you understand the company from the inside-out, both on the franchisee side and the corporate side.

Why do you want to get into franchising?

Understanding what you want out of this business relationship is vital to short- and long-term success. If you’re looking to be an absentee-owner or if you plan on passing the business down to your children are important things to think about when deciding on which business is right for you.