Buying a Franchise - Due Diligence

by a searcher

1 year ago

Hello

There's a franchise i found that's SBA 7a Qualified that's only 10 minutes from where i live in Houston.

What are the due diligence items to keep in mind  that are different from a regular business purchase?

Does anybody have experience buying a franchise?  or running one?

Would like to connect with somebody that's done this before.

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searcher from The University of North Carolina at Chapel Hill - Kenan-Flagler Business School

Don't do any franchise systems that require royalties/fees whether you make money or not.

Really like the comment above mine. Franchises give you the earnings potential of an owner, with near employee-level security. But you will be more of a manager (employee), than an owner, with a franchise. So you have to know what is driving you towards business ownership. If it is just the $$, then this might work for you.

Find out churn rates among franchisees, but the only person that can give you this info is the franchisor, so ask them, but take it with a grain of salt. Definitely talk to ex-franchisees and current franchisees that you find yourself (look on LinkedIn).

1 month ago | like reply | 0 likes

searcher from Southwestern University

The biggest advantage of a franchise is that you're not in it alone. Definitely find other franchise owners - not the ones provided by the franchisor - and get their view of things. How quickly did it grow? What was the support from corporate like? What was your biggest frustration? Where was the franchise support group the biggest help? Did they feel like they were set up for success at launch time (and the weeks and months following)?

Most newer franchises have truly awful support. So you get to donate part of your profits to them, but they provide nothing post-opening. They all get sued and learn they have to hire a bunch of people to support the franchisee, so age of franchise is significant.

For the franchisor, ask about the details of ongoing litigation. If they've been around for more than 5 minutes, there's always some litigation. Ask them what the revenue / profit looks like for the average franchisee. What are the max/min/median revenue / profit numbers for the first year? Second year? What have they seen that is the biggest indicator of a successful franchisee in their business?

The data you want to see is there - that's a nice feature of franchises - but you've usually got to demand to see the unvarnished data.

1 month ago | like reply | 1 like

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