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Bay of Plenty Region
Sunday, April 18, 2021
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Validation or excuses?

Whilst interest in becoming a franchisee entrepreneur is on the rise, we know this will not suit everyone and, as always we strongly suggest a robust due diligence process is undertaken.

However, we are seeing some trends in what people are raising as reasons to not pursue business ownership and I think it’s time that we called them out as they often confuse excuses with due diligence and validation.

We will wait and see what happens with Covid

High on the list – if not the top reason that potential entrepreneurs use to rationalise not pursuing a franchised business – is the uncertainty around Covid-19. In fact, every time we have a change in Covid alert levels we see candidates instantly drop out of the process.

The pandemic has created uncertainty, but we are now definitely living in a new normal for now. We have seen the impact of lockdowns; in business we have seen winners and losers and we have some view forward.

But, unquestionably, the world is not going to return to what it was before Covid-19, so waiting for this to happen will be an unending exercise.

High on the list – if not the top reason that potential entrepreneurs use to rationalise not pursuing a franchised business – is the uncertainty around Covid-19.

The due diligence questions should include; what are the opportunities with this particular systems, industry or location driven by the new normal, and what will they look like in the future? How is the system or industry that I am looking at going to be impacted by potential further lockdowns or disruptions?

The economy may take a downturn

Also high up the list of justifications is citing that the economy may trend down. Recently released December quarter results are sure to see this issue raised more frequently.

This isn’t a new justification and one I always find fascinating for several reasons.

The economy does go through cycles, so regardless of where it is at any moment, during the life-time of a business it will be exposed to an economy in both growth and decline.

Additionally, and importantly, not every business, system or industry fare the same in different periods of the economic cycle.

What is important is to understand is the history of and/or what’s likely to happen over the cycle in terms of impact on the business, system or industry under review.

As we have discussed previously, some businesses do extremely well during downturns.

Unquestionably there are opportunities and risks over the entire cycle, and being worried only over a decline I would suggest is potentially myopic.

Not sure the timing is right

Absolutely, the timing to start or purchase a business needs to be right for the individual, and there are a number of factors to be taken into consideration.

However, many potential franchisee entrepreneurs fail to fully evaluate whether franchising generally or a particular business is right for them, citing the timing.

In my view, it is basically a lazy excuse for not completing due diligence. Are they addressing the real question, namely, is it right for them?

Firstly, if it is truly and solely a timing issue, the buyer may return to it in the future.

Secondly, due diligence can take anywhere from a month to over a year depending on the system or business so an individual’s.

And of course other circumstances could change significantly over that time.

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

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