Why franchise due diligence is essential

Being a small business franchise owner is hard work. Yet the hardest task is not operating the franchise.

The hardest and most ignored task is research during the due diligence period, prior to signing on the dotted line of the franchise agreement. Not enough people who venture into a new business spend the time in pre-entry due diligence, yet many franchisees can play the blame game if it all goes wrong.

Pre-entry due diligence is essential to reduce the risk to your investment. Therefore, it’s important to ensure you know the demands that will be placed upon you before you enter the franchise network. Issues like family needs can be ignored when the excitement of being your own boss approaches and necessary lifestyle costs so easily forgotten when the initial financial analysis is done. Small business is hard work and although franchising can reduce your risk, never think for one moment that it mitigates your responsibility to fully understand your obligations and your requirements prior to entry.

The following advice may be useful in helping you decide which franchise is suitable for your own business investment.

While the advice itself may not be new, experience and evidence suggests many, who have followed the path to franchise success before, have ignored the research to their own detriment.

Franchising is not a guarantee of success, but it can help you transition into small business much more easily. A good idea needs more than an open shop front door to attract customers – it needs investment, consumers and ongoing development and support.

A good franchise idea may excite you now, but will it pay the bills in two years’ time? Pre-entry due diligence is the most important part of establishing a new business, so temper your passion and excitement as you work through the essential research required.

First priority – know what you want

Why are you considering moving into the uncertain world of small business? Is it for the riches you think you can attain, or is it an investment?

The most important issue that should be crossed off first is whether you have the passion for the uncertainty and risk of small business. If you think it’s just a good idea you can play with whilst you keep your own job, then think again, and save yourself the money and heartache.

Small business is demanding upon your family, your bank balance and your health, so you had better be sure you are doing it for the right reasons. Money is not usually one of those.

Of course, there are riches that can be attained from the growing world of franchising. There is evidence everywhere of franchisees that have succeeded and provided a good future for their family. Yet, there are also stories of franchisees that have failed because they didn’t have the right reasons as to why they entered the network in the first place. If you don’t have the right reasons or the passion for the journey, think again.

Second priority – choose good advice

There is never any shortage of people wanting to give you advice – some of it welcomed, most of it useless. The same can be said about the consultant sector. Many franchise consultants are very good, but just as many are very bad and should be avoided.

The point is advice is vital for your new venture into franchising. The Franchising Code of Conduct requires a new entrant to seek legal and accounting advice, but surprisingly many future franchisees waiver this requirement. It must be the excitement of going into a new business that lets an investor waiver a right they have because the folly of not seeking good advice from consultants could ruin their plans. Do not ever consider waivering your rights for good advice.

Third priority – which franchise?

There are over 850 franchise systems in Australia so there is much to chose from. You can either go ‘sexy’ with a popular well-known brand or you can find a franchise that may not be popular, but may return your investment much easier.

There are franchise systems that service homes and businesses and, of course, there is retail. There is food and beverage, homewares or car servicing. In fact, there is anything you could think of within the franchise sector.

The Franchise Council of Australia is a not for profit membership organisation that is the peak body representing the franchising sector in Australia.