A buyer recently sent me an email that he was opening a franchise business “due to the uncertainties, hardship and difficulties of “due diligence”” on an existing business to buy. The implication was that by buying a franchise, he didn’t need to do due diligence, or as much due diligence on the business. Nothing could be further from the truth. Buying a franchise is no guarantee of success. Some franchises have a high success rate and others do not. A good franchise may not do well if the local market for the business is not good, or too competitive, or the location chosen is a bad location, or for other reasons. When buying an existing business or buying and opening a franchise, you need to do due diligence.
Here are some things to keep in mind if you are considering 
buying a franchise.
Look at the market – national and local – for the franchise you are considering. Look at the competition in your market. Look at whether there are other franchises in the industry that may be a better choice. Look at whether there are franchises that are already in business that you can buy. Visit www.frandata.com for information.
Look at your own strengths and weaknesses. Do they match what you will need to do as the owner of the business? Look at your day to day activities as the business owner. Will you enjoy doing these activities? Is the business something you have an interest in?
Franchises are required to provide you with a Franchise Disclosure Document. This gives a lot of information about the franchise. Be sure to read it completely. Be sure to look at the franchise fees – initial fees and ongoing fees – that you will have to pay. Choose at least ten franchisees to contact and find out how they are doing. How much money are they actually making? How much support are they receiving from the franchisor? If they had it to do over, would they buy the franchise?
Someday you may want to sell the franchise. Look at the fees to transfer the franchise to your buyer. Check to see what the franchises are selling for on the resale market. Can buyers get financed or will you have to finance a buyer? Check www.franchiseregistry.com for a list of franchises that are eligible for expedited loan processing for an SBA guaranteed loan.
If you are opening a retail franchise business, be sure to do your own analysis on the location. What local competition is there? Are the demographics in the area good for your business? Is the rent in line with what it should be to maintain the expense structure you need to be successful?
Whether you are buying an existing business or buying a franchise, you need to do your due diligence. If you are interested in buying a franchise that is already operating, contact us. We have several franchise businesses for sale. If you want help in your search for a business to buy, contact us. We can show you the businesses we have available for sale, represent you in your search for a business to buy, or do an active search for a business to buy.
