Franchising – The 3 Stage Due Diligence
Deciding you want to become a franchisee can be an exciting as well as daunting time. Depending on the franchise you are looking at entering into, this could involve a small investment with the aim of giving you an extra interest or additional monies, to a full time endeavour that will become your main investment and security for your future.
Consequently, before taking the step of becoming a franchisee you should ensure you have undertaken sufficient due diligence to ensure you are taking the right step for you.
Below are some of the factors you should consider as you move through each of the due diligence stages.
Personal Due Diligence:
With the help of trusted family members, not afraid to tell you what they really think, you should look at why do you want to become apart of a franchise network, what do you see as the positives and negatives, what are your personal strengths and weaknesses, what are your goals out of this, and will you have the personal ability, financial and family support to be be able to take this step.
Talking with your financier, accountant and lawyer may also help to ensure that you are not looking at any opportunity with rose-colored glasses.
Franchise System Due Diligence:
There are numerous franchise systems out there, so before you pick any specific system, you should seek to know exactly what is available, the negatives and positives of each, and talk with people in various franchise networks to get their personal views.
There are numerous magazines, websites, franchising/small business expos that can be read and/or attended to get a good idea of what is out there. Business brokers may also be able to assist, as may your financiers, and franchising experienced accountants and lawyers, who may have other clients within various franchise networks.
Franchise Purchase Due Diligence:
Once you have made the decision that you are ready, willing and able to become a franchisee, have chosen the franchise system you want to become a part of (and which you believe you can fit within) then you need to do more specific due diligence into the franchise system and the specific franchise business you are buying.
What due diligence may be required is something you should first discuss with your lawyer and accountant. This may also depend on whether you are buying a new franchise business or purchasing an existing franchise business. This will change the relevant areas that must be included in your due diligence investigations and also impact what contracts you need to enter into.
Finally, we strongly recommend before paying any monies, even a deposit, or signing any agreements you speak with your lawyer and accountant (who you should first confirm how experienced they are in franchising) to ensure you are sufficiently protected and to put in place the relevant steps to conduct your due diligence and protect your interests as you move forward into your new endeavour.
Please note this does not purport to be comprehensive advice relevant to your circumstances. Consequently, specific legal advice for each of your circumstances should be obtained first before taking or not taking any action in respect to this area.