What Should be a Franchise Buyer’s Most Basic Question?
For over 30 years we have consulted and counseled on the concerns of franchisors and franchisees alike. And, of course, that includes the needs of prospective franchisors and franchisees as well as those already in business. But of all the issues faced, one is overwhelmingly the most common, and it pertains to prospective franchisees. It involves, as the title suggests, a franchise buyer’s most basic question. And that question is: Do you think it’s a good franchise?
The long answer to that question demands study and detail in a process referred to as pre-purchase due diligence, which Bibby Group has long offered, but this article is not about lengthy due diligence. It’s about the a more basic issue that should be on the minds of prospective business owners whether the business is a franchise (be it a start-up or an existing unit) or an independent venture (either already in practice or a start-up by the entrepreneur).
That more basic issue is found in what should be a franchise buyer’s most basic question. Long before one asks if it’s a ‘good franchise’, the question should be ‘do the fundamentals of the business seem logical?’
Granted, thorough investigation of a business model requires depth and detail, but we’re not concerned here with lengthy analysis, but ones initial reaction to what is being proposed. Call it gut level, call it intuition, or call it common sense, but the bottom line is quite simple – is the idea, or critical parts of it, logical?
Here’s a real life example that, while unique, symbolizes an opportunity for a buyer to address the basic question of ‘business model’, which in turn, addresses the eventual quality of the franchise.
In this case the franchisor is offering area development opportunities but not where the prospective buyer lives. The buyer doesn’t want to move so franchisor agrees the buyer can run the business as an absentee owner. OK, that’s doable in some businesses … if the business is thoroughly understood, if the right management systems are in place, and … if proper staffing is positioned. But what about the following twist?
The business is a ‘cash business’ and it’s not a cash business such as a proven fast food operation with proper POS controls, but a cash business where a service is rendered and cash is handed over.
Do you see anything that could possibly go wrong with this idea? Anything? Yes, the ‘risk’ of theft. Or shall we say the certainty of theft. Not only will the franchisee lose money, the franchisor will lose money if royalties are based on a percentage of sales.
No need to go further. A franchise buyer’s most basic question should always be: Does logic prevail within the concept?
If you want to pursue franchise due diligence on a particular concept, or if you have questions about the business proposition you are considering, send an email and set up a time to discuss your concerns.