Due diligence is the keyword to ensure that everything you have planned in buying a franchise will not go in vain. Proper franchise opportunity analysis can only do you good.
Unfortunately, choosing NOT to do the business due diligence will bring you problems and perils later on.
A price to pay for not doing business due diligence: I lost my franchise units
You don’t need to prove anything, as I have already proved that not doing my due diligence properly before buying businesses cost me not only one, but two franchise units.
My root of the problems is that I didn’t fully understand what is needed for the due diligence to be done properly. The keyword: properly.
Indeed, I did some basic of the needed due diligence, but not in an investigative way. I did analyse well on location-wise issues: Mapping and analysing competitors, traffic flows and customer base, as well as other location-specific analysis. Unfortunately, I didn’t investigate deep into the franchise opportunity itself.
The results: Unmet expectations and unpleasant surprises (most surprises in business are not good ones – The more you gain control on risks and minimise the unknowns, the better your chance for success.)
Due diligence in a nutshell
Due diligence is basically investigating a business opportunity (in this case, franchise opportunity) in an investigative way. By investigative, you need to find potential loopholes and mistakes in everything the franchise company is offering you.
Skepticism is your friend in completing the due diligence, as you need to analyse things, such as the franchise company’s financial projections, existing franchise units’ performance, the franchisor’s management team and company culture, the franchisor’s policies and procedures, and many more.
The franchisor might hate you for rigorously do your due diligence, but hey, it’s your money, not them. What’s more, here’s the cold, hard, fact about franchising: If you succeed, your franchisor will succeed too; if you fail, most likely you will fail alone (or at least, the impact of your franchise unit’s failure on your franchisor is partial.)
The above is a strong reason why you have to do your due diligence.
What to do?
I suggest you to consult with a franchise consultant on how to properly do due diligence.
In some cases, franchise consultants have already done the due diligence for the benefit of their clients. However, trusting on your consultant 100% is not advisable – Remember the stock market disasters and the Madoff case? Trusting your money manager or the so-called expert 100% will only put you at risks of losing money (and more.)
You need to equip yourself with the right knowledge, in this case the knowledge about due diligence in buying a franchise. Again, do your due diligence, unless you are happy-go-lucky type of franchisee candidate.
Ivan Widjaya
due diligence in franchising
Image by carla216.
