How should you research buying a franchise?

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So, you have decided you want to invest in a franchised business. What research should you do? Most franchisee entrepreneurs will undertake four steps in their research which will include:

1. Ask google

Around 75 percent of research or initial interest in purchasing a franchise business will start with a google search. After-all we research toasters and cars, so web-searching a franchise business seems quite logical and there is usually loads of information readily available from customer reviews, franchisee profiles and any media coverage. Of course, online information may not always be balanced, complete or even true and you need to evaluate the source as much as the information itself.

2. Visit the brand(s) website

Once a potential franchisee entrepreneur has narrowed their search to a category, it’s usual that the next online step is to visit the website of the brand, or brands in that category. Most franchises will have information on their websites relating specifically to franchising and how to become a franchisee. The amount and quality of the information may differ significantly and is not always correlated with the value or quality of the franchise business opportunity.

3. Contact and meet with the franchisor

At some stage, if someone is wishing to progress their interest in a franchise business, they will contact the brand owner or franchisor. The response and steps from there can vary, some systems have highly developed and structured recruitment processes, whilst others may border on casual to hap-hazard. Again the recruitment processes may not always match the experience or franchise business once in the brand.

4. Speak to qualified and relevant advisors

Any purchase should involve consulting with professional advisors, usually an accountant and a solicitor. And most people will take this step.

My caveat here is advisors need to provide qualified and relevant advice. With an emphasis on relevant. You need to ask if the advisor works in the franchised space, do they know the brand or have they consulted with any clients that has operated one?

Disappointingly I see far too often potential franchisee entrepreneurs take as gospel the advice of advisors that are not familiar or had any experience with franchising.

What should you do?

Does this approach provide a comprehensive evaluation? Well, no. It may provide a
reasonable assessment of the brand or franchise opportunity, but critically it will not provide you with the answer to the all-important question, “is it the right opportunity for you?”

There is however some additional research every potential franchisee entrepreneur should undertake before investing money and time in a particular franchise business. 

Around 75 percent of research or initial interest in purchasing a franchise business will start with a google search. 

Check that franchising is for you

Franchising generally is not for everyone, and that’s completely fine. It only becomes an issue when someone decides to purchase a franchised business and franchising isn’t the right fit for them. From experience I have seen this happen far too many times and the outcome will nearly always be one or all of dissatisfaction, lack of performance and or conflict.

But how do you know? There are actually two questions, the first, is being in business for yourself the right option, and the second, is a franchise the option for you? A great place to start is by visiting The Franchise Association of New Zealand website and completing a free on-line course.

Experience the brand

If it is a bricks and mortar business, like hospitality or retail, have you visited, purchased from and or experienced the brand in the past 12 months?

If it is a service-based brand, again have you had used or engaged with the brand in the past 12 months? If you haven’t – there is potentially a question as to the relevance and position of the brand in the market and more importantly, what passion or love do you have for the brand?

How have you felt engaging with the brand, have you dealt with franchisees personally or been able to identify them in the business? Did they appear to take pride in their business and the brand? Could you relate to the franchisees, and could you see yourself doing what they are?

Speak to your family and friends

Your family and friends probably know you better than yourself. It’s a great idea very early on in the process to discuss your intentions with them.

You do not need to breach any confidentiality covenants, it can be as simple as saying, “hey, I’m thinking of purchasing a franchised business or “I’m thinking about XYZ band, what do you think?”

They are sure to raise some considerations around the business as it relates to you that you may not have thought of.

Speak to existing franchisees

Most well-structured franchise systems will insist that you speak to existing franchisees as part of a formal due diligence process. However, you do not need to wait to reach this point and you shouldn’t.

Some of the best performing franchisees and most prepared for franchising I have had the pleasure of working with had visited businesses, sought out and had casual conversations with multiple franchisees before they even contacted me as a franchisor.

Generally, people are happy to speak to you and again there is a lot you can learn around the brand and whether it’s the right option for you without asking anyone to compromise confidentiality or commercial sensitivity.

Related: What to consider before starting a franchised business with family

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Nathan Bonney
Nathan Bonney
Director of Iridium Partners. He can be reached at nathan@iridium.net.nz or 0275-393-022

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