Sean Fitzgerald: 5 Tips for minimizing risk when buying a franchise

Although it is impossible to eliminate all risk when investing in a franchise, there are some things you can do to minimize risk. 1851 caught up with Sean Fitzgerald, Chief Development Strategist of No Limit Agency*, to leverage his years of experience in franchising to get some good tips on this subject.

Lots of reasons, but one of the biggest I’ve seen is that franchisees don’t do their due diligence finding out all the working capital they will need. Not having proper capital to start a franchise is a huge risk. Item 7 in the Franchise Disclosure Document (FDD) reveals the initial investment required for a franchise but only lays out three months of investment. Unless you are successful in that first three months you will need more cash flow to sustain the business.

Seek validation from existing franchisees. Ask them questions about the business beyond what the franchisor has provided you. Ask them what has made them a successful owner. What were their pitfalls and mistakes? The time taken to find these answers is worth their weight in gold.

Exactly! But don’t just read it – understand it. You also have to understand the franchise agreement and what is being asked of you. People read it but don’t comprehend it correctly.

Hire a franchise attorney that has a track record and experience with franchise law. They will better be able to negotiate on your behalf because they understand the franchisor/franchisee relationship. They will look for things outside the norm of franchising in the FDD and franchise agreement. Most agreements are standard and experienced franchise attorneys will be able to detect anything unusual.

Make sure that you have a good grasp of the day-to-day of a successful franchisee operator in the brand you are researching. If it requires you to be good at sales and marketing to do well and that is not your skill set you are setting yourself up for failure. Be sure that you want to do the work expected of you. Remember, it isn’t about doing what you love; it is about loving what you do.