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28th Mar 2010
Buying into a big franchise brand is safer, right? Not necessarily.
Big franchise brands are not necessarily immune from collapse.
You only need to look as far as the recent Australian cases of Kleenmaid, Kleins and EzyDVD to name a few.
Our research reveals that while older, more mature brands seem like a safe choice, it may not always be the case.
The perceived benefit is older franchises have had more time to iron out any teething problems, the business model and systems are well proven and the brand well known.
However, bigger franchise networks may also have higher levels of conflict than smaller franchises which consume resources and take focus away from other areas of the franchise business.
While it’s important to consider the size and age of the franchise business you’re thinking about buying, it shouldn’t be the only consideration.
I know my highlighting of the importance of due diligence is probably beginning to sound like a stuck record by this, the seventh and final article in the Franchise Myth Series, but it’s true.
If you conduct your due diligence thoroughly you should identify any warning signs that the franchise opportunity you’re considering may be in trouble.
Have a close look at the franchise disclosure document which the franchisor is required to keep updated annually, seek professional advice and speak to current and past franchisees.
The recent Australian Federal Government Franchise Inquiry, and in fact the other recent Australian State-based Franchise Inquiries, all recognised the need for franchisees to conduct thorough due diligence.
Due to the number of franchisees that don’t conduct thorough due diligence and instead base their franchise business selection on emotional rather than informed decisions, they’ve called for better pre-entry education.
Our research supports this view and highlights the importance of due diligence — a lack of it is a major cause of franchise conflict and franchisee failure.
Visit the Franchisee section of our website for some guidelines on what to cover when conducting due diligence.
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