Performing Due Diligence Before Purchasing a Franchise

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If you’ve decided you’d like to go into business for yourself, and you’ve decided a franchise opportunity best suits your needs, it’s important to do your due diligence and thoroughly research the franchises you are considering before signing on the dotted line. Here are some tips on how to investigate a franchise before making a definite decision on a franchise investment.

You’ll want to gather information from both the franchisor and other resources, examining both the qualitative and quantitative aspects of the franchise. Having this information will help you make an informed decision and go into your new venture with confidence.

Qualitative Research

What does the franchisor offer in terms of brand strength, longevity, growth opportunities, training, and support? Purchasing a franchise means you are entering into a long-term relationship with the franchisor, and it’s crucial to fully understand what they offer and how much support you will receive. One of the benefits of having a franchise is that it’s an already established brand with a customer following and brand recognition. You won’t be heading into a business venture from ground zero, you’ll already have a head start with proven business and marketing systems already in place, and training and support to teach you the ropes and ensure you are successful. It’s important to confirm that the franchisor actually offers all of these benefits and that you won’t be left to fend for yourself.

Quantitative Research

Assess the financial commitment that will be involved in starting a franchise, including initial investment for purchasing the right to the franchise, any ongoing royalty or marketing fees associated with ownership, and estimated expected revenue. Factor in all expected expenses, including rent or mortgage, utilities, furniture, supplies, equipment, and salaries (including your own). You want to make sure your total investment won’t exceed your revenue over an extended period of time. Being in the red initially is to be expected, but you’ll want a good return on your investment in due time.

You’ll also want to find out details such as the length of the initial term of your contract, renewal terms, termination and transfer rights, and dispute resolution provisions. Read the fine print on the franchisor’s contract and make sure you fully understand its terms and conditions. Be sure the franchisor can provide clear answers about their system, franchise sales, and disclosure laws. The Franchise Disclosure Document should provide clear information about what the franchisor offers and its requirements of franchisees.

Other Resources

Another valuable source of information is current and former franchisees. Prepare a list of questions and schedule an interview with two or three to get a feel for their experience working with the franchisor. Additional resources to investigate include franchise research websites, franchise industry publications, franchise forums, and your state’s franchise registrar.

When you arm yourself with comprehensive research and fully understand the details, you can enter into your new franchise venture with confidence and peace of mind. If you’ve done your due diligence and are ready to purchase a franchise, contact Ori’Zaba’s Scratch Mexican Grill to learn more about our franchise opportunity.

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