Prospective Franchisee Due Diligence Part 5

October 29, 2013, 5:53 PM

This post, and the posts that preceded it (Parts 1-4) outline the due diligence that we recommend for prospective franchisees. For the prior blog posts on this topic, clickPart 1, Part 2, Part 3and part 4.

Before you narrow down your search to a single potential franchise investment, you should investigate similar, alternative franchises. For example, if youve decided to invest in a pizza franchise, dont lock into a single franchise, particularly solely because you like the food or the experience. A great product or experience, by itself, does not equate to a great franchise. Check outfranchise.org or Bonds Franchise Guideto see if there are other, similar franchises. Compare unit economics (such as number of stores in operation, initial franchise fee and royalty percentages).

Unless you are a skilled financial type, hire an accountant to generate a pro forma to estimate potential sales and likely expenses so that you will know if you can expect a reasonable return on your investment over the life of the franchise.

Read a good book on franchising I recommend Franchising for Dummies by Dave Thomas and Michael Seid.

Only after you have completed all of the due diligence steps discussed in Parts 1 through 5, and remain convinced the franchise investment is appropriate, should you hire qualified franchise counsel. We strongly recommend you hire franchise counsel who is a member of both the American Bar Association Forum on Franchising and the International Franchise Associations Supplier Forum.

For further information regarding this topic, please contact Stephen E. Story at 757/624-3257 or sestory@kaufcan.com. - Stephen E. Story