I’ve witnessed many franchisees failing to complete thorough due diligence on a franchise and “leaped.” You must complete several tasks (and receive answers to your satisfaction, of course) before signing the Franchise Agreement.
- You will need to present clear documentation of your financial affairs. Franchisers will want to see that you are financially secure before they award you a franchise.
- Review the provided by the franchisor to prospective franchisees) carefully. Among other details, look for any litigation issues, the franchisor’s obligations to their franchisees, the franchisee’s obligations to the franchisor, any restrictions on sources of products or services, and any financing that the franchisor may provide or recommend.
- Pick the brains of current Franchise for Sale Melbourne. Ask questions regarding the level of support from the franchisor, the time it took to reach the cash flow breakeven point, any disputes with the franchisor, and the company’s competitive advantage, to name a few.
- Ask the franchisor exactly what the franchise fee covers. Some investments pay for all start-up costs, while others don’t include training and marketing to keep the up-front cost low.
- Determine how much cash you have to invest upfront. Some franchises may be out of reach based on the required down payment.
- Size of your franchise. Decide whether you prefer a large franchise operation offering more brand-name value or a smaller franchise with more personal, hands-on support and responsiveness if you run into problems.
- Support. Ask about hiring personnel, marketing, and advertising and the level of support and training provided for each.
- Seek counsel. I highly recommend hiring an experienced franchise attorney to review the entire franchise agreement, so you have a clear understanding of its contents. An attorney inexperienced with franchise law will not be qualified to adequately ensure your complete understanding of the details outlined in the franchise agreement.
- Find out what the franchisor’s expectations are in terms of profitability and other key numbers. Some franchises demand quick success translated into specific sales numbers, while others will allow you time to grow.
- If applicable, invest plenty of time when hiring a general manager or supervisor overseeing your franchise business. Ideally, you’ll choose someone with industry experience to give yourself the best chance of success.
- Find out about sources of supplies and equipment. Some franchises require that you buy almost everything you need from them or a designated supplier, which can be a major plus, as you’ll benefit from economies of scale. Be sure that pricing is reasonable and competitive with other sources in your area.
- Lastly, identify your skills, passion, and interests and match them to an appropriate franchise. A restaurant franchise may be a great choice if you have a culinary background, as it would match your skill set. However, if you’re not a handyman and have no interest, you might want to stay away from a home improvement franchise. This is important as you will never succeed in a franchise business model you are less passionate about.
