Your Franchise Due Diligence Checklist
Due diligence is the phrase of the day when it comes to your franchise search. By doing your franchise homework thoroughly, you're setting yourself up to fly straight to the top of the class.
Discover the three must-have items on your franchise due diligence checklist.
Study Your Franchise Disclosure Document
As required by the FTC, a franchiser's disclosure document must tell you the company's legal, financial and overall story. This stack of papers is where you'll find vital information such as the company's history, financial state, any litigation the company is involved in, and a breakdown of start-up costs. Go over this disclosure with a fine-tooth comb, and question everything. For example, if you see that the franchise is involved in a lawsuit, make sure you get the details on the case because it could be relevant to you. For added protection, it doesn't hurt to have an accountant and attorney review the disclosure.
Do Some Market Research
Your business has the best chance of success if it's in the right place. Your proposed location and the area's demographics will have an impact on your bottom line, so multifaceted market research is essential here. Check out the location's community to make sure your target customer base is strongly represented. Take a serious look at the physical location itself. Is your location easy to access? Are there building plans that will affect access in the works? How much competition do you have? Once you have all of these answers, you'll get an idea of whether your potential area is a boon or a bust.
Talk to Other Franchisees
Current franchisees in the company you're considering are one great resource, so don't leave that untapped. Any upfront franchiser should be willing to schedule some meetings with you and other franchisees during your research phase. Think about what you want to ask the franchisee before the meeting so you don't waste the opportunity. Common things to ask include how much the franchisee makes on average and if he or she would join the same franchise again knowing what he or she knows now.
Any serious commitment requires due diligence, and a franchise is no exception. Follow the steps outlined above to take some of the variables out of your franchisee success equation.
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