A lot like people, franchises come in all shapes and sizes. Some have a large presence and a correspondingly expensive buy-in, while others have few locations and can be reasonable to acquire. This article provides guidance for preliminary due diligence and learned discovery.
Recently I was asked, “What is my favorite franchise?” In truth, buying a franchise is a lot like finding a spouse or a home– there is no perfect fit, one-size-fits-all. As a franchise attorney I assume different roles for different clients. Sometimes I act as a consultant, offering advice beyond the legal realm. In this capacity my experience and observations are utilized to aid with the due diligence process. Vetting franchise systems is the primary responsibility of the individual entrepreneur, yet the assistance of a consultant can be very valuable.
For other clients, my advice is purely legal. In this role the type of franchise is of no consequence to me – it is the contractual and legal elements that are of primary concern. From my position as a franchise attorney, the elements of the Franchise Disclosure Document (FDD) and Franchise Agreement (FA) are the same. The same basic provisions appear in all FDD documents regardless of brand. For me, it is the fine print – the details – that matter. Different brands take different positions and offer, or require, different variables. So as a franchise attorney, it is my primary occupation to scrutinize the details before deciphering them onto my franchise client, and eventually negotiating on my client’s behalf.
The perspective franchisee must lead the charge in due diligence. As a franchise attorney, I act at the direction of the client and so the client must plot the course. The question therefore arises as to how an entrepreneur considering different franchise brands is to proceed.
The entrepreneur must investigate the brand… thoroughly. This means speaking with current and former franchisees. Gather information from franchisees, including actual sales data and personal experiences. Learn why franchisees left the system; explore their opinions about the leadership and management of the company. Inquire into the levels of franchise support, including training, marketing, technology, and supply line/distributors. Query the willingness of the franchisor to work with and assist struggling franchisees and ask how the franchisor made such accommodations.
From the outside, most franchisors look polished and professional, boasting robust opportunity. But, look beyond the fancy logo and website. Proper due diligence requires intense scrutiny and evaluation. Investigate into the interworking of the brand and look past the outward appearance.
The franchisor sales representative generally presents the brand in a positive manner enticing you to invest; this is the job of a salesperson. Yet, it is incumbent upon the potential franchise purchaser to look beyond the glitz. The rapport established with the salesperson is inconsequential and is of little to no value. After becoming a franchisee a different point of contact will be assigned, and the salesperson will continue on to the next perspective client.
An entrepreneur must be introspective before becoming a franchisee. Skill sets are utilized by aligning franchise brands with the capacity of the entrepreneur. Honest consideration must be made by examining one’s financial capacity and skill set. Relying upon the franchisor to teach the skills necessary for success is bad policy; the potential franchisee should align themselves with brands that suite their professional experience and aptitude. Ultimately the franchisor is not responsible for the franchisee’s success, the franchisee must be able to suite the needs of the business through sufficient management and growth promotion.
So, the best franchise is one that suits the needs and the skill set of the entrepreneur. It is the potential franchisee’s job to make the determination on these points.
Providence Law works with small businesses at all stages, from start-up to end-game. We have a unique franchise practice focusing exclusively on franchisee. We assist small businesses with details from business plan generation to commercial lease review.