If you're thinking about purchasing a franchise, it's important to conduct thorough due diligence to ensure you make an informed decision. Buying a franchise is a significant investment of time and money, so it's essential to do your homework before signing any agreements. In this blog post, we'll discuss the type of due diligence you should undertake before purchasing a franchise.
Research the franchise
The first step in due diligence is to research the franchise you're considering. Look at their website, read their brochures, and talk to current and former franchisees. Ask them about their experience with the franchise, what challenges they've faced, and how the franchisor has supported them.
Evaluate the franchisor's financials
You should also evaluate the franchisor's financials to ensure they're financially stable. Review their audited financial statements and look for red flags, such as declining revenue or increasing debt. It's also a good idea to look at the financial performance of existing franchisees to get an idea of what you can expect.
Understand the franchise agreement
The franchise agreement is a legal contract that outlines the terms and conditions of the franchise relationship. It's important to carefully review this agreement to ensure you understand your obligations as a franchisee, as well as the franchisor's obligations. Consider having a lawyer review the agreement to ensure you're fully aware of your legal obligations and rights.
Investigate the franchisor's litigation history
It's important to investigate the franchisor's litigation history to understand potential legal risks. Look at any lawsuits that have been filed against the franchisor, as well as any disputes with franchisees. If there have been a lot of lawsuits or disputes, it could be a red flag.
Understand the franchisor's training and support
One of the benefits of purchasing a franchise is that you receive training and support from the franchisor. It's important to understand the type of training and support provided and whether it's adequate. Look at the franchisor's training programs and support resources, and talk to current and former franchisees about their experience.
Evaluate the franchisor's marketing and advertising
The franchisor is responsible for marketing and advertising the brand, so it's important to evaluate their marketing and advertising efforts. Look at their marketing materials, social media presence, and advertising campaigns. You should also understand how much you'll be required to contribute to the franchisor's marketing fund and how those funds will be used.
Determine the total investment required
You should determine the total investment required to purchase and operate the franchise. This includes the initial franchise fee, ongoing royalties, and other fees. You should also factor in the cost of real estate, equipment, and other startup costs.
In conclusion, due diligence is critical when purchasing a franchise. You should research the franchise, evaluate the franchisor's financials, understand the franchise agreement, investigate the franchisor's litigation history, understand the franchisor's training and support, evaluate the franchisor's marketing and advertising, and determine the total investment required. With thorough due diligence, you can make an informed decision and increase your chances of success as a franchisee.
8. Consult with an immigration attorney if you plan to purchase the franchise as an E-2 investment
Attorneys may have different opinions on which franchises may or not work for E-2 investment purposes. Therefore, consulting with an immigration attorney before deciding on a franchise may be a good idea and one that saves you time and money.
Visa Business Plans is led by Marco Scanu, a certified coach from the University of Miami with a globally-based practice coaching Fortune 1000 company executives, entrepreneurs, as well as professionals in 4 different continents. Mr. Scanu advises clients on turnaround strategies and crisis management.
Mr. Scanu received a bachelor’s degree in Business Administration (Cum Laude) from the University of Florida and an MBA in Management from Bocconi University in Milan, Italy. Mr. Scanu was also a Visiting Scholar at Michigan State University under the prestigious H. Humphrey Fellowship (Fulbright program) with a focus on Entrepreneurship, Venture Capital and high-growth enterprises.
At present, Mr. Scanu is the managing partner and CEO at Visa Business Plans, a Miami-based boutique consulting firm providing attorneys and investors with business planning services in the areas of U.S. and Canadian immigration and SBA loans.