Conducting Your Due Diligence
Before investing in a franchise it is imperative that your explore each of the following areas:
Ensure the business is a sound financial proposition and that the financial data you are given makes sense. Ensure a business plan exists. Break down the numbers so that you know exactly what you must sell in products and services each day and how many clients you must service. Know your break even point.
How much time commitment does the business require and are you prepared to meet that commitment. Will you have to work weekends and public holidays and are your family OK with that.
Is the business seasonal, are sales consistent all year round.
Assess The Documentation
Examine all documentation provided by the franchisor to ensure you know what is and isn’t on offer. What training is provided, how is support delivered, what marketing does the franchisor do and what is done by the franchisee.
Is the cultural fit of the franchise network right for you. The average franchisee term is 7 years in a system so you need to make sure that you are aligned with the company’s vision and that you support the values and can work with the people running the system.
Ask plenty of questions and get answers. Talk to franchisees past and present to determine their experience working in the system.
Disclosure Document – DD
The DD lists the experience of the directors, any litigation past and present, franchisee contact details and trademark registrations. Study this carefully and satisfy yourself of the integrity of the system.
Operations Manual – OM
Lists minimum performance criteria and other legal obligations on the franchisee. It is important you read this as a breach of the OM is a breach of the franchise agreement.
If purchasing an existing franchise that has a leased property, check that there is enough time remaining on the lease to make a return on investment. Check also that there are no plans by the landlord to demolish the building. The DD should list this but check with the landlord as well.
Fit Out Costs
Are fit out costs fixed or variable in cost and when are they next due.
Your interview should be a two way question and answer session, not all one way. Ask plenty of questions surrounding support, business plans etc
Franchising Code of Conduct – FCOC
The FCOC is in place to protect all parties in the partnership. Ensure you get legal and financial advice. It may cost a few thousand dollars, but in the scheme of the investment, it’s well worth while.