Franchise due diligence

Doing due diligence – 3 tips to help

There seems to be a bit of an annual tradition in Australia as the year draws to a close. Almost everyone takes a significant chunk of annual leave and the time and space to think gives one pause for thought; possibly wondering if there might be something else out there that might suit 2020 better.

And with 2019 drawing to a close, drawing ever closer to the new year, you might find yourself thinking; New year, new you, new business. Maybe even a franchise?

Whatever your work experience to date, it’s not too hard to imagine stepping into an already established business and building on their brand as an easier path. A lot of the set-up is done for you and all that you need to worry about is steering the ship, right?

Well, sort of. The truth is that operating a franchise comes with its own set of trials and tribulations. That doesn’t mean it isn’t the right step for you, there are just a few considerations you should take into account first.

In other words, do your due diligence.

Due diligence 101 – do your research and make a plan

If you’ve run a business before, you might feel like a franchise will be an easier beast to handle – no further research required, you’ve lived all the lessons you need and it might be tempting to skip over doing your due diligence.

It’s true you’ll probably have a good head start on someone who’s never been ‘the boss’, but in the eternal words of Han Solo: “Great kid, don’t get cocky”.

Don’t skip due diligence.

There are a number of schools and programs out there solely dedicated to training people to run a franchise specifically – and you should really look into getting involved in one before you buy into your franchise. Yes, it might be a bit more cost outlay, but just knowing what’s expected, particularly if you’ve never run a business before, could be the difference between success and failure or buying the right franchise for you and the wrong one.

A good businessperson never wants to be the smartest person in the room – they value the input and teachings of others, especially when they’re walking into a new venture – even if there’s a fair degree of hand-holding available.

Talk to current franchisees

Whilst franchisees do own their business, franchises, especially the big brands can be pretty hands-on when it comes to how that business should be run. For a lot of business owners, that’s a huge benefit. There’s no need to invest time and energy troubleshooting the best way to do things or designing all your marketing collateral – somebody already did.

However, it’s good to know what you’re getting into so far as oversight, support and costs. Everybody has likely worked for that one person who expects the world and hands you nothing to get it with. Choosing the wrong franchise can be like that times a million and with your money on the line.

So how do you figure that out in advance?

One of the most critical parts of due diligence is talking to people who have already walked the path. Visit the locations of any franchise you’re considering and observe. If you feel like the situation is comfortable, ask to set up a meeting with the owner to see how they feel things are going and get an idea of what you’d be dealing with if you decide to move forward. It might even be worthwhile checking-in with a couple of less than satisfied former owners if you can find them (ask around, check FB or linkedin). Ignore any emotion they may have, but listen to the facts of their experience.  If you could deal with or think around the experience they had, considering moving forward. If not, find a different franchise.

A lawyer and an accountant walk into an office – you need to do due diligence with both of them.

Your obligations as a franchise owner are complex. Your money is supporting your business, but someone else’s assets paved the way – that’s where things can get a bit sticky.

Part of due diligence is doing everything you can to educate yourself. Part of that is recognising there is always going to be too much to learn – especially at the beginning. By doing due diligence with a lawyer who’s well versed in franchise law and your accountant, you give yourself two sets of professional, independent eyes who are working solely for your best interests – not your potential franchise partner’s. That difference is critically important. You have to remember that if you are trying to buy something, someone is trying to sell it to you, you are being pitched to – for better or worse.

By getting advice from outside sources, you’re not only checking the financial viability of your potential business, you’re allowing yourself the time and space to really consider if you’re genuinely ready to take the next step. And someone who’s not quite as emotionally involved in the purchase might pick up on a range of things you’ve not considered yet.

And that’s where we can help. If you’d like to have a chat about your New Year; New Business plans, we’d be delighted to help. You can call us on 02 6023 1700 or drop us a note via the form below.