The Franchising Company’s How to Investigate a Franchise Series
Our team at The Franchising Company is putting together a new blog series for our clients or anyone interested in purchasing a franchise on the steps to take when performing your due diligence into a specific opportunity. Today's post is on the MOST IMPORTANT step in that process: Validation.
Validation is the process of contacting a brand's existing franchisees to confirm the information provided to you by the franchisor. As a prospective franchisee you will want to talk to existing franchisees that are top performers, average performers and low performers. During these calls it is important to understand the financial performance, the initial training program, their on-boarding process, break-even point (and how long it took to achieve), on-going training/support, marketing support (especially with regards to Digital Marketing efforts), satisfaction with the franchisor and their investment.
Take notes, lots and lots of notes!! Ask the franchisee if you can contact them again if/when you choose to join the franchise system. Use these franchisees to avoid costly mistakes. Learn what has worked well for them. Learn what has not. Be sure to talk to franchisees in similar markets (both in size and demographics).
Also it's important to determine what the differentiating factors between a top performer and a low performer. Is it the experience/background of the operator? Is it the market they operate within? Are the low performers following the system and/or taking advantage of the support being offered? Are the top performers doing anything outside the system?
Asking financial questions during these calls will help validate the Item 19 Financial Disclosure within the FDD (if provided). Asking these questions will also allow you to put together a detailed Pro-Forma (financial projection) for your own investment.
The Franchising Company has a list available of suggested questions to ask franchisees. If you would like a copy of these questions before you start your validation calls please email or text 270-215-2844.