Monday, 07 November 2016 15:55

Considering Buying Into a Franchise? Do Your Due Diligence

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Some potential business owners believe that buying into a franchise offers a degree of security.  For some, it does.  For others, it doesn’t.  At McDonald Vague, we have seen our share of clients who have bought into a franchise believing they had a fool proof plan for success but have ended up in trouble.  In many instances, the reason they’re in trouble is because they didn’t do their homework before signing up to be a franchisee.

If you’re considering buying into a franchise, it’s important that you look into every aspect of the business.  After all, you’re buying into the brand and the franchisor’s ethos and you’re agreeing to follow the franchisor’s model.  If there is a misalignment in values, you could get into trouble.  If you can, talk to other franchisees about their experiences so you can get some idea of what it will be like to be part of that franchise and how members of the public view the brand.  A Google search of the brand name can also provide people’s views about the brand, current and former franchisees, and the franchisor.

Financial Viability:  While the franchisor will probably give you some financial information to work with, it’s important that you do your number crunching.  It’s also a good idea to have an account or business advisor look over your numbers.  A couple of high performing stores can skew the numbers and make the investment seem very attractive.  It’s important you’re confident that you can make your business successful based on your projections, which must take into account the intended location of your store, that neighbourhood’s business and population demographics, and socioeconomic make up of the neighbourhoods near your store.

Ongoing Costs:  When you become part of a franchise, you’re agreeing to pay more than just a one off joining fee.  Franchise agreements contain ongoing financial obligations in the form of royalties, marketing, and training (you can find our blog on ongoing franchise costs here).  If you don’t take these ongoing costs into account when carrying out your due diligence, you could be in for a big surprise, once you start running your business and it might be difficult to leave the franchise (you can find our blog on leaving a franchise here).

Get Advice:  You need to understand all your obligation under the franchise agreement.  For this reason, we strongly recommend that you have the proposed franchise agreement looked at by a lawyer and that you get legal advice on the proposed franchise agreement before you sign anything.  We also recommend you consider how being a franchisee will affect your lifestyle (you can find our blog on preparing yourself for being a franchisee here).  Once you sign that agreement, you’re in.

If you’re thinking about buying a franchise and want to talk it through, email us and one of the friendly team at McDonald Vague will get in touch with you.

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Read 1784 times Last modified on Sunday, 30 July 2017 11:21

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