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How to Buy a Franchise Due Diligence Tips from a Franchise Expert - Part I (of III)

Written by: Kevin Brendan Murphy

Reputation Level 13

Posted about 3 years ago. 6 helpful votes, 0 comments

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Industry Trend

Is the franchise in a cutting-edge industry that is doing well currently and is projected to do well in the future despite any economic slowdown? Education, health care and home-improvement services are stable categories. Food is over-saturated generally and, except in exceptional circumstances, is not worth the high investment, long hours, headaches and marginal income.

Total Initial Franchise Investment

In general, don't expect a franchise that requires a five-figure initial franchise investment to produce a six-figure income. As with most things in life, you get what you pay for. On the other hand, don’t assume a six-figure investment will lead to a six-figure income level. Be realistic and conservative.

Real Business

Is this a legitimate retail business, as opposed to a "work out of your home" operation? The vast majority of work out of your home concepts produce marginal income at best.

Franchise Management Expertise

Does the management team of the franchisor (the company selling you the franchise) have executives with demonstrated past achievement and experience in operating a franchise company (not just persons who have sold franchises)? If not, this is a big red flag.