How to Buy a Franchise Business With Confidence – Part Two
Logical steps for entrepreneurs to buy a franchise –
#4 – Franchise Due Diligence
If you buy a franchise without serious, professional franchise due diligence you are making a big mistake. This is where the process moves away from introspection and into investigative skills.
Knowing how to dissect a franchise and separate salesmanship from facts is an art form. Naturally, first time buyers are at a disadvantage at this point. Why wouldn’t they be? It’s brand new to them. Being careful is important, but being careful of ‘what’ is the issue. Learn to discern between what is being said and what is being sold. If unclear, get competent help. From disclosure documents to sales literature to home office visits there is a lot to examine, and a lot in the gaps between. Buying a franchise is not only tricky business, it’s a complicated business. On both a personal and business level there many pitfalls to avoid. But first the pitfalls have to be identified.
#5 – Franchise Brokers
Sometime in the 1990’s independent franchise brokers began referring to themselves as franchise ‘consultants.’ Until that time the term consultant was used exclusively by ‘fee for service’ consultants involved with creating new franchise brands and advising on purchases. Now, the hundreds of brokers calling themselves consultants have made it difficult at best for newcomers to discern who and what they are dealing with. The only word of caution is this. Franchise consultants/brokers have one purpose and that is to introduce prospects to franchisors that will pay a fee (commission) if the prospect buys. Regardless of how the services are described, that’s the goal. And that is not consulting. The fee for service franchise consultant charges a fee to work for and represent the buyer. When an advertisement reads ‘Free Franchise Consulting’, you have a broker. Enough said.
#6 – Go Slow
Check and double check everything that is said and everything that is written. The sad truth is, most franchise buyers do not understand what they’ve purchased until long after the sale and the business is open. This is due to not taking the time to conduct proper due diligence and understanding how their life was about to change. Franchising is not nearly as secure and safe as you are led to believe. In fact, the failure rate is quite high. Be very careful.
It’s amazing to think that people will spend their life savings (and borrow more) to purchase a franchise that they don’t understand. It’s even more amazing to think that at the same time, people will not pay a pittance for pre-purchase counsel. ‘Penny wise and pound foolish’ is the phrase and it’s human nature. But then again, salesmanship goes a long way.
Pay heed and do your homework, both on a personal and a business basis.
For further information on how to buy a franchise, explore this site and be sure to read the articles.