Can you buy yourself a goldmine?

• can you buy yourself a goldmine.pdf

can you buy yourself a goldmine.pdf

Franchising presents an opportunity for an individual to run their own business. But is it an easy path to a golden fortune? 

Prudent investors reap rewards

Those who view franchising as a sure fire, risk free road to business success, fame and fortune are in for a rude awakening.  While franchising does remove some of the risks associated with starting a small business, it is by no means a panacea for all potential obstacles.  Returns aren’t guaranteed and franchisees do fail. 

Of the more than 1100 franchise systems from which prospective franchisees can choose, there are undoubtedly some good buys and, just as assuredly, there are some systems you should avoid like the plague.  The question is which is which and how is the prospective franchisee to know? 

Conducting due diligence on the franchise system of choice is a fundamental responsibility of every prospective franchisee.  This should include evaluations of the financial returns possible, operational support, current franchisee satisfaction and a myriad of other considerations.  Franchisee should also attempt to obtain an independent view of the systems they are considering.  Only after conducting such investigations can they make a fully informed decision to proceed or not.  Given the risks involved in all businesses, it is staggering how many prospective franchisees don’t conduct any due diligence at all, let alone to the level they should. 

The current economic downturn will certainly produce a swath of distressed businesses - including some franchised businesses.  This may present a significant opportunity to purchase such businesses at well below normal market prices.  However (and here’s the cautionary note), prospective buyers need to determine through their own due diligence whether or not the business has simply been poorly managed and whether or not it is fundamentally sound. 

Business goldmines might exist, but the prudent investor should not waste time looking for them.  Instead, a focus on conducting solid due diligence on some well chosen targets should see the prudent investor well rewarded.

David Stafford 

David Stafford is an Executive Consultant at DC Strategy.