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Due Diligence: The Best Strategy for Safe Franchise Growth

Due Diligence: The Best Strategy for Safe Franchise Growth

The franchise model has become a widely used business model throughout the whole world. Every day there are more and more options and types of franchises, leading to more individuals looking to invest by means of acquiring well-established franchise enterprises and brands. In recent years, new business models that have arisen from the technology industry, such as crowdfunding, have also resulted in additional growth to an already increasing market.  Investors often want to take advantage of an existing brand and business model for more predictable cash flow, but how do franchise owners verify that the franchisee applicants are who they say they are?  How to protect your brand?

Franchises are preferred among many other business models because there is a certain safety in the investment. The investors know that the business has already proven to be successful in different places, they do not need to lose time or energy in structuring a business model, and the brand is recognized already. As with any business, there are still risks. For franchisors, all their work could be ruined if a rotten apple picks their brand. Before entering into a business relationship, it is absolutely crucial for franchisors to thoroughly investigate prospective franchisees to make sure their trademarks and business model is safe, especially in international deals.

Why due diligence?

Investors tend to think that due diligence is a one-way process. The buyers are more aware of due diligence because it is clearer for them how much is at risk when acquiring a business. It can be difficult to determine which franchise is the most profitable or suitable for each person to invest. As such, it is very significant to have extensive knowledge of the potential business or investment that will be made. This is where due diligence comes in and has significant value for the investment in a franchise business.

However, international due diligence goes the other way as well. Franchisors have an established business model that has taken years of work and a lot of resources invested in building a brand so strong that it can grow in different parts of the world, and this established model and brand must be protected. All that effort cannot be put in the wrong hands, regardless of how much money is offered.

The due diligence process

The due diligence process comprises a comprehensive investigation that is carried out by international private investigators, to ensure that the franchisor will be protected and secured regarding the origin of the investment. Moreover, within the mergers and acquisitions context, carrying out full due diligence will allow the franchisor to determine the value of a particular investor within the business, including any potential liabilities and contingencies that may be associated with the investor.

Due diligence will grant the franchisor with enough background about the investors’ businesses, operations and reputation, and will provide a broad view of the situation and what needs to be adapted, improved or maintained to achieve the desired goals.

Experienced private investigators at Wymoo International say that every due diligence process should be customized to the particular needs of every franchisor, however it usually includes (not limited to) verifying the individual and representative(s), checking company registration records for those with companies, investigate legal standing and any negative history, such as any history of criminal, court or litigation records, and more.

Professional investigators also obtain and verify independent references in international due diligence cases on franchisees, so that companies know the person they are entering into business with is reputable and who he or she claims to be.

Make sure your franchise grows with less risk and greater profits. Expanding the business is important for franchisors but being safe is a key factor in long-term survival. Contact us if you need help verifying a potential franchisee applicant!

C. Wright
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