Found a franchise idea that sounds like a great investment? It’s always exciting to encounter a business opportunity that beckons with the promise of success. But you’ve got some work to take care of before answering that call: your due diligence.
A common hallmark of business success stories is wise decision-making, and that’s what’s required here. It’s vitally important to conduct a detailed, thorough examination of the franchisor, and consider the potential upsides and downsides of any decision to invest. Your due diligence is essential to identifying whether an opportunity is worth pursuing, or simply not as good as it seems.
While a whole pile of research might not sound fun, it’s more pleasant than the pain and headaches you could wind up with if your franchise investment turns out to be a dud. Here’s how to get the due diligence process started when assessing a potential franchise investment opportunity:
First, research the franchisor
Begin with the business owner. Read up on their history and reputation, their financial track record and their plans for the future. Do some digging in online forums and try to find out how they treat their franchisees. Does it sound like a business that fits with your values and ideals?
Give their Franchise Disclosure Document a full read
Franchise businesses are required to give prospective franchisees their Franchise Disclosure Document, which details and explains everything an investor needs to know about costs, fees, legal obligations, and anything else of importance. It’s vital to read this document in full and make sure you understand it before proceeding any further in the assessment process.
Be sure the money makes sense
The Franchise Disclosure Document will explain the cost of acquiring a franchise, the start-up costs associated with getting your new business off the ground, and how much you’ll have to pay the franchisor in ongoing royalties and marketing fees.
What might not be included are some of the other costs you could face, such as rent and utilities, insurance, salaries for staff, plus legal and accounting fees. If you’re borrowing money to invest in this franchise, how will interest payments impact your bottom line? Needless to say, it’s essential to make sure the money makes sense before investing.
It’s also wise to have a second set of eyes to review financial figures, so consider hiring an accountant you trust to examine the numbers. You might also hire a franchise lawyer to look at your disclosure document and other paperwork. These experienced experts should be able to identify any potential red flags you may have overlooked.
Talk to other franchisees about their experiences
If you’re happy with the finances, and the details of the Franchise Disclosure Document, it’s time to talk to some real-life franchisees about their experience as owners. Try to speak to as diverse a group of owners as possible to get a full range of opinion and experiences. Needless to say, a newer franchisee might have different feelings than someone who’s been doing it for a decade. Likewise, try to find owners who’ve had success and others who have faced struggles – their stories will offer an insightful look at the challenges you might end up facing one day, or how to avoid a similar fate.
Find out how much pre-launch training and ongoing support you’ll get
Most franchise businesses have some sort of program that helps new owners learn the ropes before opening their doors for the first time. This often requires an extended visit to the franchisor’s main office for multiple days or weeks of hands-on instruction. Most franchisors will have programs and policies in place to help owners handle some of the issues that tend to come up when a new location opens. Be wary of the franchisor who’s eager to see you invest in their business but doesn’t have any kind of plan in place to help and support you once you’re up and running.
Franchising with The UPS Store
With more than 30 years of franchising experience in Canada and one of the most recognizable brands in the world, The UPS Store is an industry leader, making us stand out among the competition. Visit our FAQ page or fill out our online inquiry form to learn more about franchising with The UPS Store.
