10 Steps to buying a Franchise Business, Step 5 – Due Diligence

Honeybees’ basic strategy is to maximise return over a broad geographic area and extended time horizon. Bees have to assess their environment at all times and be prepared to adapt depending on the weather conditions, the time of the year, the type of flowers and the competition for nectar with birds and other insects. Bees are heavily invested in research and development, constantly on the lookout for the next best thing while taking in revenues from the current sources. Scout bees monitor the number of sites at any given time to ensure they will be the most profitable

So, you have made your decision on the Franchise you want to be running, you have had initial contact now is time to take this enquiry to the next level. At this point, the franchisor should ask you to sign a Non-Disclosure Agreement (NDA). Once you have signed the agreement the Franchisor will send you the next stage pack which should contains extensive information about the franchise, including the history of the Directors, any litigation the company has experienced, the names and contact information for the current franchisees, a template of the Financial Projection and a template of a Business Plan.

You will be asked to then complete both of the documents, so it’s time to put your business hat on and following the template create your own business plan and financial plan.

Do extended researches at this point:

  • ask as many questions as you can,
  • call the existing franchisees; this is a good way to evaluate how well a franchisor supports its franchisees
  • google the franchise name and see what comes up!
  • look on social media,
  • what do customers say about this business,
  • how involved are they in the community, can you actually see yourself representing this brand?
  • who is the competitions? What are they strategy?
  • evaluate if you will need some staff?
  • Trademark, registration, this is part of a strong brand they should have all this in place,
  • You may want to do a little profiling on the Franchisor himself…

The Financial projections should be worked out on the term of the franchise whether it is 3, 5 or 10 years, look at the bigger picture and think big, think ahead, think how you can grow and expand the business.

At that point, you should also be involving your lawyer, so he can also guide you through the process of the due diligence, you must do everything you can to know as much as you can on the Franchise and the Franchisor you are looking to do business with.

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