Franchise business models are based on growth and expansion, using a brand name to expand. The more people want to buy a franchise, the more solid the business is. Why? Because the ultimate goal of a franchise is to be everywhere and to reach as many people as possible. Having a recognizable brand is the main strength of a franchise, the reason that it exists. Its sales depend on the brand positioning and the success of the expansion of this brand. However, this is not enough to enter a business deal with just whoever claims to have the money necessary to buy the franchise. Protecting your valuable brand name is key to success, and this is precisely where due diligence enters the picture.
What is international due diligence?
International due diligence is not just a fancy phrase. For franchise businesses, it should be a mandatory step in their search for the right investors. For every single new deal, companies must do their due diligence to guarantee they have their assets protected. When a franchise enters a deal with an unknown source, the entire business is at risk. That is why it is essential to know every fact, to check under every stone, with a professional investigation.
Professional due diligence services can verify the potential buyer’s previous businesses, their companies’ legal registration and standing, check assets and business reputation, verify cash flow, search criminal and court records for any link to fraud, embezzlement, or questionable practices, bankruptcy and lawsuits, check references, verify ID and passport, and much more. Being able to verify that a franchisee is who he or she claims to be, and will strictly adhere to the company’s procedures is key to protecting the brand and the overall business, and this can only be achieved if there is solid evidence and proper verification done, followed by trust between franchisors and franchisees. This ground is built on evidence, and finding evidence is what due diligence is all about.
What to consider when getting an international due diligence investigation?
As mentioned above, the greatest asset of a franchise is the brand, so it is important to keep it safe from any issues that can bring financial and reputation damage to the whole business. Negative publicity or connections to fraud or criminal activity at one location can potentially sink the whole brand. Once incident can do permanent damage to a brand name, and if enough bad franchisees are brought on board, the result can lead to bankruptcy.
Due diligence investigations should be customized to the needs of your specific brand and case, and investigators should be in the country where you need them. Some may need to focus on financial data, while others might need more insight regarding other business connections, the subject’s business reputation, even environmental, social and political positions can be relevant in some cases where brands are linked to particular interests. In these cases, the private investigation firm used needs to be able to deliver more than database results. Real investigations require real investigators! They need to use their expertise and creativity to get to the bottom and find reliable and relevant evidence.
Another very important thing to consider is the coverage and experience of the international private investigation firm hired to conduct the due diligence. Do they have professional investigators on the ground in the country the buyer is planning to open the new location? Do they have access to all the relevant sources of information, as well knowledge of the local laws that apply? Hiring the right investigation company to assist you is key to find the answers to all of your questions. This is especially true in developing or foreign countries.
Lastly, don’t dwell on the loss of a potential partner if the due diligence turns up with negative results about the buyer. After all, due diligence is a necessary investment to avoid bad deals. It is a wise insurance policy in many ways. Finding out unpleasant details upfront will save you a lot of time, financial hardship, and reputation damage in the long run.
Sign your contracts with informed consent and clear evidence, so you can grow your franchise. Growing the business is important, but not at the expense of the business name.
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