Most people considering buying a franchise have heard at least once that they need to do more research first. However, many people do not know what a proper and high-quality due diligence entails, and often experts say that many times the franchisee fails because they hire an inexperienced consultant/specialist at a cheap price.
Thorough research before purchasing a franchise
Some tips to follow
1. Listen to suggestions.
One of the essential components of in-depth research is discussions with former and current franchisees. Some franchisors have a list of franchisees who can provide referrals. But more often than not, they are the most successful and satisfied franchisees in the system, so the potential franchisee will need to find other partners to offer a (potential) different opinion. Franchisees can be a vital source of information for candidates interested in joining a network, a source that allows them to make the right decision for future cooperation.
2. Conduct a comparative study.
Often, budding franchisees become attached to a particular franchise without evaluating others, but you should consider this as well. Benchmarking will shed light on a particular franchise's unique aspects, differences from others, and provide additional insight into decision-making.
3. Determine how much the initial investment is.
Franchisors are required to disclose information and estimates of the costs that will be incurred to open a franchise and sometimes a few months of operation. Some franchisors provide more accurate estimates than others, but in any case, each candidate must perform their own analysis and calculations to determine how much capital will be allocated to the initial investment. Rents, licensing costs and staff salaries are just a few of the costs, which can vary by location.
4.Determine what you want to get out of this franchise in the long run
It is important for any potential franchisee to remember one aspect that distinguishes franchising from other forms of independent small business. The franchise comes with a long-term commitment of 3, 5, 7 or 10 years, or even longer, during which the franchisee and the franchisor must work together. Therefore, the franchisee cannot just decide to change their business if they get bored. When closing a franchise, he may lose the entry fee, or he will remain indebted to the franchisor for possible liquidation losses or future payments.
5. Rely on the experience of those who have networked
One thing a potential franchisee needs to keep in mind is that there will always be someone with the right experience and knowledge to help with advice. Even if a potential franchisee has experience developing and running a new business, the franchise business has its own differences that franchisees have faced in the past, so it's worth talking to these people.
6. Understand and discuss all issues related to the franchise agreement
Some franchisors continue to emphasize that it is not possible to change the terms of such a document, but this is not always true and potential franchisees must be actively involved in negotiations with the franchisor.
Considering the long duration of the cooperation, it is essential that the franchisee understands the terms, clauses, conditions in the contract and defends his interests.