Growth Club
1851 Growth Club
What Should I Do Before Buying a Franchise?
Entrepreneurs need to do the proper due diligence, evaluate their financial standing and seek the council of experts in the industry before signing on the dotted line.
Before buying a franchise, entrepreneurs need to decide on a segment, narrow down their options and then do their due diligence on their top picks and develop a full understanding of the franchise requirements.
To find the right franchise, prospects should outline their growth goals, financial capacity, skill set and ideal ownership environment, and then look for industries and specific concepts that would be a strong fit. Through this first step, prospects need to make sure to seek out the help of a qualified franchise consultant or franchise attorney. When contemplating buying into a franchise system, franchise professionals can be an essential resource as they are experts in the industry and know how to align the right concepts with the right prospects.
Once prospects have decided on a potential concept, the next step should be to reach out to the leadership team for more information. From there, they should carefully read the franchise agreement and Franchise Disclosure Document to ensure they know what they would be getting into.
Assessing the initial investment and financial obligations and comparing those to personal financial liability is also important. The unit economics of the franchise will be found in Item 19 of the FDD, while the costs that will be associated with joining the brand will be found in Item 7. Prospects should ask themselves how much money they are willing to borrow and research the timeline on the return-on-investment for that specific brand.
Another important step is to speak to those who know most about the reality of the franchise opportunity: existing franchisees. As a good rule of thumb, prospects should try to reach out to at least 10 franchisees for validation. This is a great opportunity to ask difficult questions and really dig into what day-to-day life could look like as a franchisee.
Buying a franchise is a big step, and while each individual person’s process will be different based on where they are in their career and life, these are some of the most important steps to take before starting a franchising journey.
