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Top 10 Things to Check When Buying a Franchise

It's an exciting time in your life, you've built up capital, you are hungry and eager for great opportunity and start to look at franchising. You've worked incredibly hard for your capital so naturally you don't take the decision to start a business lightly. When entering into any business relationship the buyer should be excited and make their purchasing choice with informed decision. So how can you prepare? Well this is an all encompassing step that you must take in interviewing any franchisor. Due diligence is the responsibility of the buyer and it helps ensure that the you understand what are the particulars of the business and industry that you are about to enter into. There are several ways to prepare yourself but these are the top 10 areas we recommend you look at when research any franchise system:


1. Make a draft business plan

Even in franchising this is a natural first step. While there are a variety of attractive franchise models, it is more important to align with a business that speaks to your core values, goals and experience. Having a rough draft of a business plan also makes you a great candidate for many franchisors as it shows serious intent.


2. Conduct market research


There are many free available resources to help aid in your research. Now is not the time to ignore any material that may be beneficial. Check out your local library for additional reports on industry trends. Browse through articles and blogs online from trusted sites. Depending on the industry you want to enter you may even want to conduct a survey to test your market.


3. Research local and federal laws


Almost every business has a barrier of entry. The minimum threshold that must be obtain in order to operate. In the real estate industry, property managers may be required to carry a regulated license and qualify under provincial brokerage rules. There are additional provincial and federal laws (such as GST and registration) in order to operate as a small business. Your potential franchisor may be able to assist in pointing you towards the correct, applicable legislation.


4. Do a competitive analysis


You most likely will have to do this as part of your business plan but many franchise candidates can be presently surprised at the results. Competition in any market is healthy- it means there is no monopoly from a single source. Choose a minimum of 5 other competitors that are within close proximity of your business. Be thorough and if you can considering purchasing a product. There is nothing like a first hand experience with a potential competitor!


5. Consult with industry professionals


Join a local networking group and find some peers! If you are new to the industry it could give some clarity and insight into areas of the business that you may have not even considered. As well, since you are planning to open a business there is no bad time to start making new connections.


6. Run through a example accounting scenario


Your potential franchisor should outline what some upcoming costs can be but they have no control over your own personal costs such as rent, utilities, materials, etc. We recommend starting with at least 2 scenarios. The first is the best case scenario- what would happen if you achieve your dreams? The second is the worst case scenario. While no one enters into business for the worst case, it is important to outline what you consider to be the bottom scenario and when you may need to exit.


7. Be thorough with your franchise disclosure document


All franchisors must present you with a FDD (Franchise Disclosure Document) within this document are several details about the franchise. More importantly it sets the expectations for both the franchisee and franchisor. While some may be intimidating with this document, you can consult with a franchise lawyer who can help you understand the particulars of the document.


8. Validation calls with current franchise partners


This will take time but do not skip this! Current franchise partners are often busy people and it may take a couple attempts to book down a time. But there is nothing else that can compare to hearing first hand experience. Reach out to 2-3 partners of variety. While it may be important to connect with franchisor owner in a neighbouring town, remember that personality can dictate how one conducts business. You may want to speak with a newer franchise parter to understand the start-up process or a seasoned franchise partner who has seen the growth and history of the brand.


9. Evaluate your sweat equity


It is no surprise that starting a business is going to take some elbow grease. However, buying into a franchise model is more than just a financial investment but your own hard work. Speak with your family as your schedule may change and understand the boundaries that you are willing to work within.


10. Trust your gut


Simply put- if it doesn't get you excited don't do it. Entering into a new business relationship should be exciting and if you have fears understand where that may be coming from. Fear is common in the process but a great fit for a franchisor should feel like a new beginning.


Keep in mind that your industry may differ and you might have to add on to this top 10 list. However, there is no such thing as too much research before entering into any business relationship. If you need a little help navigating the process consider reaching out to trusted franchise brokers or even setting up some initial calls with prospective franchisors.

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