Buying a Franchise and Due Diligence Must Go Hand in Hand
Question from a Visitor
You say that most franchise buyers don’t conduct due diligence. Why?
Intellectually, one would assume that franchise buyers would want to fully research an opportunity before purchasing. But the truth is, most prospective franchisees are operating in unknown territory. They are intimidated because everything is new. Franchise salespeople, whether employed by the franchisor, or brokers acting independently, have a very powerful hold on buyers in terms of experience and knowledge. Buying a franchise and due diligence should be automatic partners, but new buyers are simply not astute enough to understand that. We created The Focus Program for Emerging Entrepreneurs to help prospective business owners conduct due diligence on an opportunity as well as on themselves in the world of self-employment.
The sad truth is that buyers most often purchase on emotion, not facts. A combination of salesmanship and believing in what is being said is often enough evidence of reality. Bottom line, the dream of owning a given franchise generally trumps legitimate due diligence. That’s why such a small percentage of buyers choose to do it or have it done for them. We’ve conducted best practice surveys among franchise owners where nine out of 10 never read disclosure documents or understood what they purchased until they were in the system.
Also, it seems to be human nature to take the path of least resistance. So, buying a franchise without due diligence, especially professional due diligence, is understandable in that regard. The mind sometimes does not blend with reality and buying a franchise can fit into that realm.