Investing in a New Franchise - Always Riskier but Worth the Risk?

January 15, 2013, 8:30 AM

Investing in a new franchise concept is inherently more risky than investing in an established franchisor. Established franchisors have a track record of (hopefully) successful operations, have (more than likely) worked out the inevitable hiccups faced by a company starting a new franchise system, and, most importantly, have a number of existing franchisees who can comment on the strength (or weakness) of the franchise system. All of these factors dramatically improve a prospective franchisees thorough due diligence process. Conversely, new franchise systems offer virtually none of these attributes. While some new franchise systems will grow rapidly, many more will languish with a relatively small number of franchises, often for a long period of time. Accordingly, a prospective franchisee should spend significantly more time on its due diligence process for a relatively new franchise system, and should be sure its due diligence process includes use of trusted advisors (e.g., attorneys and accountants) familiar with franchising.

For further information contact Steve Story at sestory@kaufcan.com or (757) 624.3257. --Stephen E. Story