Investing in a franchise can be extremely rewarding. However, it’s important that you don’t get all your information on how to open a franchise from the franchisor—you should do a little bit of research on your own. When you research other sources, you should look not only at how to open a franchise, but also into the background of the franchisor in which you are thinking about investing.
Doing due diligence is essential when it comes to any kind of business investment—including franchises. The following are a few tips for researching a franchise to ensure it is a good fit for you:
This shouldn’t be too difficult. A basic search will uncover all kinds of information about the franchisor. Read any news articles that tie the franchise to any controversies. For example, you may not want to invest in a business that’s being investigated for tax fraud.
Of course, there could be plenty of good news—for example, articles revealing innovations the franchise has implemented, awards it has won, or services it has provided to the community. These kinds of things reflect positively on a franchisor. Don’t forget to check the Better Business Bureau to find out if any complaints have been filed against the franchisor you are researching.
Speak with entrepreneurs who have invested in the franchise you are considering. Find out how long they have been operating their franchise, how much assistance they are getting from the franchisor, how difficult it has been to run the franchise, and more. Ask if they are happy with the decision they have made and whether they would do it again.
Last, but not least, ask them if they believe that the franchisor was upfront about how to open a franchise and honest about potential difficulties in running a franchise. This should give you a good idea about the relationship that the franchisor has with its franchisees. You want to work with a franchise that is honest with its franchisees and that provides strong support—not one that is only worried about the bottom line.
You may even want to spend a day or two with the franchisee to see how he or she runs the franchise and whether it’s run smoothly.
The top management are the people in charge of major franchising decisions. Look for management that has experience owning and running small businesses. They have a clear understanding of what it takes to run a franchise and the challenges you’ll face.
Don’t be afraid to speak with the franchisor about any concerns you might have regarding your investment before making a decision. A good franchisor should be able to address any concerns you have. This is also a good way to look for potential red flags. For example, ask why some franchises have faced trouble or have closed. This will help you identify any flaws in the franchisor’s system or challenges that you may face.
Due diligence is an absolute must if you plan on investing money in a franchise. Be sure to use these tips to research any franchise you are considering. If you have any questions about running one of our franchises, be sure to contact us at Pretzelmaker at any time.