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Prospective Franchise and Small Business Owners: Do you understand your due diligence?

Posted by Dean Claughton on 24 Jul 2015

Owning your own business means living the dream right? Being your own boss, flexible hours and achieving success in your chosen field…

Purchasing into a franchise or small business can appear, at first glance, as a relatively simple and risk-free way of taking control of your career. However, the rush felt by prospective business-owners often leads to overlooking a critical aspect prior to starting up - due diligence, and at the end of the day, the buck stops with you.

Recent research released by Griffith University illustrates the danger of blindly taking the plunge - critiquing the level of due diligence exercised by prospective business-owners as unrefined and inexperienced when it comes to understanding the challenges associated with such a venture.

A key issue addressed by the University was the failed expectations of franchisees who relied upon verbal assurances. This reliance has lead to purchasers being unpleasantly surprised by the results of later stocktakes –discovering out-of-date stock and realising they hadn’t understood the exact terms of the lease.

The concerning results also illustrate that prior to purchase, just 14% of franchisees conducted research into their chosen market and a mere 11% actually viewed the operations of the business. Similarly, 60% of small business owners admitted that in hindsight they had exercised deficient due diligence. A further 32% labeled their efforts as inadequate.

There is clearly room for improvement in supporting and educating people considering becoming franchisees.

Prospective buyers may greatly benefit from seeking the advice of a franchise lawyer to highlight the risks involved and the steps necessary to avoid later issues.

If you are unsure of your obligations as a prospective business owner and would like help with completing your due diligence prior to purchase, contact the Coleman Greig Commercial Property or Commercial Advice Team: