More Due Diligence - Do One More Time

Being a roadwarrior means being at the mercy of hotel internet about 200 days a year, unless I what to type this on my Blackberry, so I apologize for the break in blogs.

I was involved in a due diligence meeting today with 3 people contemplating buying a franchise. I am not in sales and don't get any money from them buying a franchise, so I am unbiased except for not wanting to spend what could be a great deal of time with someone that is doomed for failure from day one.

Some of my observations from the all day meeting were:

The potential buyers didn't realize that the corporate people talk to the franchisees that they have called and it is all one big circle. If the buyer-to-be sounds stupid or rude on the phone, then they tell may tell corporate about the experience. When I meet you, I already know a lot about what you have been told and who you have talked to. Remember, the rep may talk to their franchisees every week and it is a small world.

I have never been asked about the corporate hours or support hours of business. Guess that why my phone rings 24/7. I no longer answer 24/7. If the corporate office is in CA and you are buying a franchise in NY, how are those hours going to work for you when your computer system goes down, your equipment breaks, or you have some other emergency. If corporate is in NY and you are in CA and your computer crashes at 2:30 on a busy day, you may be out of luck until the next day. What about Saturday's?

The potential buyers did ask how much profit to expect. I answered truthfully between minus 15% and plus 50%. That is true. There are so many variables, that they should asking questions and keep calling until the have the whole puzzle put together with pieces from people that they most relate to. How much work are you going to do yourself, how much are you hiring done is one big variable.

One good question was, how much money do I need to have in the bank to live on after I have bought and paid for the franchise? Each franchise is different, but my advise is that you need at least two years of living expenses and the first two years on marketing money expenses. I visit a new franchisee with a wife and kids and a morgage and he needs to start paying himself a good salary 6 months from opening the door. The stress is horrible. For all of us. We all care. We don't want anyone to fail.

Please do your due diligence diligently. For all of us, it is the best thing you can do.

Fran

Due Diligence - Do more

Greetings franchisees, or franchisees-to-be,

If you read the last blog and you have decided that you are going to listen when you call people for due diligence, then you need to have some questions written down to ask the experienced franchisees.

First, the franchisor can't tell you how much profit you will make. That varies a lot depending on many variables. It will be up to you to buy materials, pay employees, control general expenses etc, so corp doesn't know how much profit you will make. That will be up to you. So, ask the people that have been in business a few years about their profit. Does that number include paying themselves? What all are they including in their expenses?

Second, call EVERYONE in your region. Call the ones that have been in business a year, 10 years, EVERYONE. It is good to call people all over the US, but concentrate on the people who will be closest to you.

Three, ask to spend a day with a franchisee in your area. All day. If it isn't part of the buying process, then do it anyway. If it is a store or resturant, just hang out there observing. If it is a business where you can't go inside, like a Maid Service, then keep asking owners until you find someone who will let you.

I will write more on this, but due diligence is very important. I have had franchisees that wish they hadn't purchased a franchise and when I ask them what kind of due diligence they did, they always say that they called a few people that were on a list of franchisees that the company gave them. Do you think that list is going to have people that are struggling, or disenchanted, or going out of business?

If you were going out to buy a house and a car and other large purchases, wouldn't you make sure that you have checked out everything, asked other people, and done everything you can do to make sure that all that hard earned money is going into a good investment?

Why wouldn't you do at least as much when buying a business?

Fran