Before starting a relationship with a new franchise, you should investigate certain legal and financial aspects carefully. Ensuring that you’re not entering a bad deal with unreasonable terms is a process called “due diligence.”
A prospective franchisee should have access to the franchise disclosure document and any other pertinent information, and balance the information with their own goals, attributes, and capabilities.
When you’ve checked off every item on the following list, you should be ready to make an informed decision and be prepared to invest in the perfect franchise opportunity for you.
- Research the franchise system: Have you done a self-assessment, outlining your skills, assets, and abilities, before looking into specific franchise opportunities? With a list of what you can contribute to a business you can create a short list of franchise systems to research further. These systems should take the strengths and abilities into consideration, along with your interests and passions.
- Submit a completed franchisee application form to the franchise system: Once you’ve started researching specific franchise systems, you can fill out and submit a franchise application form, which will provide the franchisor with important details about your background and experience, your financial information, and the skills you have to offer. This is also the time for the franchise system to carry out their own research to determine whether, based on their experience, you will be a good fit as a franchisee of their system.
- Meet with current franchisees of the franchise system: Many franchise professionals suggest speaking to eight to 10 franchisees of the concept you’re most interested in about what’s required to drive success and examine their relationship with the franchisor. These franchisees should have different levels of experience and should be chosen from franchise locations at different performance levels.
- Meet with franchise system representatives (or attend a Discovery Day): You’ll get to this stage if you’re almost ready to make a purchase. You should be prepared to travel to the franchisor’s head office for a Discovery Day, where you will meet with their leadership team and get a final sense of whether the culture will be a good fit. Most established franchisors have a franchise review process in place that clearly defines their practices and procedures to help prospective franchisees make informed decisions, so you can follow this process, asking any questions that come up along the way.
- Build a comprehensive business plan: A business plan lays out the goals of your franchise business, and should include cash flow projections for the first three to five years your franchise will be in business, outlining the earning potential of your location and the strategy for achieving these goals. This provides banks, investors, and lenders with an idea of the scope and specifications of the project in which you’re investing.
- Consult with franchise professionals: As you contemplate your franchise investment decision, you’ll want to enlist the help of the above franchise professionals, who can provide you with the guidance you need to make the right decision.