I’m often asked what the process is for researching a franchise. There are a few steps that my clients, who are considered franchisee candidates, go through to get to a decision about investing in a franchise. In this article, I will break the process down into some basic steps. There are other sub-steps within each that I’ll discuss along the way.
The goal of this process is to help candidates do the proper due diligence to make a good decision about a franchise, whether that decision is a YES or NO. It is designed to reduce the investment risk because it helps franchisee candidates get answers upfront, to ensure the franchise is a good fit for both the candidate and the franchisor.
Before the Research Starts
Before the research even begins, a franchisee candidate should narrow down his or her franchise selection. That’s where I start with each of my clients, and where I specialize. I use a unique matching process before any of the research starts to help my clients uncover potential franchises. The research process then helps them to fully understand the franchise model and how it would fit them and their family. The selection of franchises is like dipping a toe in the water at the beach to check the temperature.
Then, the research begins.
Talk to the Franchisor
The first step in the process is talking with one or more selected franchisors. Nothing happens unless candidates take this step and it’s critical. If the selection of the franchises is like dipping a toe in the water, talking with the franchisor is like wading in ankle-deep. If candidates don’t want to talk with the franchisor, then they will not invest in that franchise. People are generally surprised when I tell them that this is where many of my clients stop. It’s definitely a reality check.
There are likely going to be several calls with the franchisor in this step. Franchisee candidates will receive the all-important Franchise Disclosure Document (FDD), probably right after the first or second call. The FDD is a legal document and will take some time to read through. Franchising is regulated by the Federal Trade Commission so every franchise has to have a tailored FDD, and has to update it every year. This document is useful to compile a list of detailed questions to ask the franchisor on every follow-up phone call. My job is to help my clients with question creation as well.
Other franchisor calls may break down topics such as marketing, projections, calls with key officers, etc. There could be many calls with franchisors or as few as one, depending on the franchisor’s process.
This is such a crucial part of looking at a franchise, and something that must be done at the beginning. I refer my clients to lenders and financial resources early on so they can get any necessary pre-approvals, complete any necessary paperwork, etc. This also clarifies why I ask for financially qualifying information upfront. I give ideas and make referrals to people who can help right at the start. This can also clarify things in my client’s heads and helps calm their fears.
Validation is where franchisee candidates get to talk with the people who run the business every day. This is where the rubber meets the road, so to speak. Now candidates are going in knee-deep and moving further out into the water.
Validation may include calls and/or visits to franchisees. In this step, candidates get to ask questions of the current franchisees, and that includes any and all questions. While franchisors will likely have more restrictive answers, during validation, current franchisees are not restricted in giving answers. I encourage my clients to talk with low, medium, and high performers in the system to get a full perspective.
This step in the process takes the most time because current franchisees are busy running their businesses and may not be able to talk immediately with candidates. Lots of phone and e-mail tags can take place during this phase of the research, but again, it’s very necessary. My clients tell me they learn the most candid information about the franchisor and the system in this step.
Discovery Day or Meet the Team Day
At this point, franchisee candidates visit directly with the franchisor. Since COVID-19, many franchisors are doing virtual discovery days via Zoom. (Thanks technology!) As of this writing, some franchisors are opening up their locations for discovery days at their home or main office. It may be called discovery day or meet-the-team day. Not every franchisor offers a day like this, but most do. This is when candidates have the opportunity to meet the people behind the scenes who help run the franchise from a high level.
This is not a vacation so it has to be treated very seriously, which also means if franchisee candidates are traveling to the franchisor, they will probably be paying something out of their own pockets. This may include hotel stays, airfare, or the entire visit. The franchisor may pick up some of the costs but more than likely, the candidate be paying for this part of the process on their own. This is skin in the game at this stage, since up to this point there is no cost for investigating.
Now franchisee candidates are getting into the water chin-deep and should be pretty close to committing to the investment. If candidates get to this point, franchisors are expecting them to have a definitive answer about whether or not they will join as a franchisee shortly after attending discovery day. A decision is expected!
Consult With Professionals
When franchisee candidates verbally commit to the franchisor, the next step is working with local professionals to pull the final details together. Now candidates are treading water! It can be a bit scary but also very exciting.
While this is considered a step, candidates have probably been gathering names of professionals throughout the process in anticipation of a “yes”. These professionals include a CPA, a franchise attorney, a funding professional, and a banker. By the time my clients get to the point where they need to talk with professionals, I have a list of local resources for them to call on.
Wrapping it All Up
Not every franchisor has these exact steps but will all follow a similar pattern, and they expect prospects to follow their process. It helps the franchisor understand if the prospect is a good fit for their system.
Ultimately this entire process gets clients to a final decision. Will it be yes or no? The information they gather in this process helps them make that decision. Being able to make an important decision like investing in a franchise is the hallmark of an effective business owner.
It’s important for potential franchisees to remember why they are going through this process. I find that my clients are always surprised at what they learn. It can be quite exciting and fun. So enjoy the process!