A Lesson in the Importance of Due Diligence

I just got off the telephone with someone who I had spoken with in July about his interest in a certain franchise.  I told him at that time, among other things, that I recommend that he speak with as many franchisees in the system and those that have left the system and ask them about what they liked and disliked about the training and support they received from the franchisor.  He told me that when he went back to the franchise broker/consultant, the broker became enraged at the idea that I would tell him that.  The broker felt that the individual investing in a franchise should only speak to the top earning franchisees in the system, since that is who he should be emulating and that my advice should not be taken.  The individual ignored the broker’s advice and spoke to many franchisees in and out of the system.  Upon doing so, the individual learned a lot of issues existed with the franchisor and that there were a lot of very unhappy franchisees.  In my opinion, this broker was clearly looking to get a deal done for the money, and had no concerns about the success or failure of the individual.  The individual went on to buy a different franchise and from a different franchise broker/consultant.

This story points out why it is so important to seek independent counsel and do all of the due diligence needed and to proceed slowly and thoroughly when evaluating a franchise opportunity.  Speaking to the franchisees (and former franchisees) will be very valuable information that can solidify a potential franchisee’s decision to acquire a territory or to walk away.  A good franchise broker/consultant should not be afraid of this due diligence and be more concerned with the success or failure of his/her candidates than their immediate fee, since the candidates that are successful are the basis for future referrals.

Posted In: Franchising
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