Franchising Due Diligence
3 due diligence tips
Her are 3 things all franchisees need to know about due diligence
- You are entitled to it
It is sensible to ask as many questions as possible before you buy a franchise. Quiz the franchisor, your accountant, your lawyer and most importantly, yourself.
- Help is available
You won’t be expected to understand every element of due diligence. Nor are you supposed to forecast all the possible scenarios. Professional advice is available to help you make sense of this information.
- Due diligence is an investment, not a cost
Advice from legal and financial experts in franchising before you buy is key to operating a business smoothly. It may cost you time and money but it could save you thousands of dollars in the long-run.
Remember, the benefits of due diligence far outweigh the costs.
THINGS TO CONSIDER
When conducting due diligence, make sure you address the following:
- The franchisor may impose restrictions as to how their business may be operated.
- You have to abide by your agreement, which could include onerous terms. Review it carefully, and if necessary seek legal advice.
- The franchisee generally has to make ongoing payments to the franchisor. This is an important issue for small business, particularly during the early stages of operations.
- You may have to make an upfront payment to the franchisor, with no guarantee of success and no refund. How do you assess the likely prospects of a franchise? If you receive information from the franchisor about past successes, ensure you have correct information that backs up the what you are being presented.
- Question bold statements made by the franchisor and ensure that they can be substantiated with facts and data.
- What happens if the franchisor goes bust? This is always a risk.