When buying a franchise you are parting with a lot of money and to be
sure the opportunity you are buying into is a viable one with a history
of success, one of the steps that aught to be taken is researching the
franchise itself and the directors that run it. There are several
tools on hand to do this as well as some questions you should be asking
of the franchisor.
Researching the company and it's directors.
Some questions you want to find the answers to are:
- How long has the company been registered?
- How long did the company run as a standalone business before they went to franchise?
- How profitable was the business itself before it was franchised?
- Have the directors had any court judgements against them?
- Did the directors run any franchised businesses before their current one that may have failed?
- Are there many bad reviews of the company floating around the internet?
Some simple Google searches will bring up answers to many of these
questions. Although not foolproof they can give you a good idea of the
companies reputation and the history of the directors.
Google the directors names and company name and include searches like:
"Directors Name - court"
"Directors name - franchise"
"Company name - review"
"Company name - scam"
"Company name - court"
Searching companies house will let you know if their claims for how
long they have been registered and in operation are true.
With these Google searches out of the way you also need to be asking
the franchisor themselves for some information and asking a few direct
questions should in most cases give you some good answers.
As above, some of the questions you should be asking are:
- How long did the company run as a standalone business before they went to franchise?
- How profitable was the business itself before it was franchised?
- How long have they been operating as a franchised business?
Warning signs:
If the franchisor is cagey about supplying any of this information or
if you find an overwhelming amount of bad reviews on the Internet about
them, then this should start to ring some alarm bells and more
investigation may be needed. At the same time though, there are many
good franchise opportunities out there that had some kind of internet
presence in the form of bad reviews by ex-franchisees who simply were
not right for the system in one way or another. Good judgement needs
to be made and a thorough investigation of all complaints to ensure
they are valid.
Side note:
Many franchised business are new opportunities, some have been built
around the franchise model and some are long established standalone
businesses looking to gain pilot franchises. In these cases the
research you are doing needs to take into account the lack of either a
franchise history or in the case of a business being built around the
franchise model alone, a lack of any history! In the case of no
history of a standalone business or franchise business then checks into
the directors backgrounds need to be done to ensure they have the
experience necessary to be managing a network of franchisees.
Part 4 of our buying a franchise series will be on investigating your local area to ensure it is likely to support the new franchised business you are purchasing.