Managing the Lead Part 3: How to Support the Due Diligence of Franchise Buyers

Purchasing a franchise might be the most significant investment a buyer will ever make, so performing due diligence will be a hugely important part of the process.

Supporting potential franchisees during this time can make or break an investment. It is crucial to be prepared to provide insight, answer questions and offer up advice.

For example, you may want to recommend speaking to existing franchisees, conducting market studies, and even hiring real estate brokers before making any decisions, according to Akash Kapoor, CEO of Indian fast-casual franchise Curry Up Now.

Here are five ways to support buyers during the due diligence period.

Talking to current owners is one of the best ways to determine if a franchise is the right fit for a prospective buyer. Speaking to people who are already in business will give them a better picture of what being a franchise owner entails.

“We highly recommend [prospective buyers] visit current open locations and speak to the owners about things such as operations, sales, marketing, guests, business prospects and satisfaction with the brand,” said Kapoor.

Franchise buyers can look into market research companies that focus on franchise data to help make an informed decision. One of the most widely-used options is Franchise Business Review.

Franchise Business Review is a franchise market research firm that performs independent surveys of franchisee satisfaction, employee engagement, franchise buyer experiences and end-customer satisfaction. The firm works with hundreds of franchises to share best practices in franchise relations and operations.

In addition to your Franchise Disclosure Document, be prepared to provide financial statements and data to prospective investors.

Additionally, buyers might be interested in historical data and ongoing market trends. Providing these figures is a practical way to show how sustainable of an investment your business will be.

Buyers may want to consult with a real estate broker during the due diligence process.

“A broker will veto the brand and understand and explain if the brand has legs in that market,” Kapoor said. “A good broker will say no as much as yes. Also, since many deals are multi-unit, planning to build a market with a broker helps from a feasibility perspective.”

It is important for the franchise leadership team to be available to answer any questions or concerns. Talking to the leadership team will allow the buyer to better understand the company’s vision and business philosophy.

Whether during discovery day or a separate phone call, be prepared to answer any questions about the brand and provide a sense of where the organization is heading.