Over the past few years we have seen numerous statements concerning the tremendous success rate of established Franchises. According to the US Department of Commerce, franchises enjoy around 90% success rates. The reasons, undoubtedly, have much to do with how well established a franchise is and how well it scales, but there’s something else too: Franchisers do not just allow anyone to become a franchisee. Nor does just anyone become a franchisee. Good due diligence is inherent in this process on both sides and we believe it is just as much a reason for franchise markets success as the franchise itself.
Due diligence works both ways
Considering how due diligence helps in franchising, it is worth going through the franchise process to see what we can learn about de-risking business operations in general.
It is a common knowledge that the franchise process is a well tested and a highly respected model – so much so that franchise businesses remain a key investment area for the banks, who continue to invest even when economic conditions are unfavourable for other types of investment. This all points to a high degree of trust in the model.
In a franchise arrangement, it’s critical that both parties know exactly what they are getting into. For the franchisor, signing the wrong franchisee can lead to a lot of unnecessary extra support and if it they fail it’s not good for the reputation of the franchise. For the franchisee, a lot of money could be at stake if it’s not a success and so they too have a lot of homework to do.
One thing is obvious: the franchise business is a place where due diligence is key to a business partnership working at a level often not seen in other types of businesses. It’s an environment where due diligence just happens and is not something that is left to chance, as can happen with so many business dealings. Due diligence is a state of mind.
With such a solid, mutually beneficial due diligence process inherent in the franchise world, it is perhaps not surprising that the success rate is almost unbelievably high.
Presence of Mind
Due diligence isn’t just for the team supporting a business acquisition or new supply agreement; it’s an ethos that should run through the veins of all employees – an inherent level of common sense.
The reality is, today’s business environment is harsher and more challenging than ever; from how our brands can become unwittingly associated with terrorism online, to internal fraud and cyber crime. This is why it is even more critical than ever to establish a strong due diligence culture, where all employees (from staff to the C-Suite) appreciates due diligence and rely on the results to make informed decisions.
Blackhawk Investigations are specialists in due diligence and international due diligence processes and implementation. We are able to investigate instances of fraud and help develop due diligence and risk reduction process that match your business’s needs. Call a due diligence specialist today and talk through your needs.
Is Due Diligence at the root of Franchise Success?
Avi Kahalani
Franchising isn't a growth strategy that suits every business, but those that do offer or take up franchise arrangements often find that they are remarkably successful. Part of that reason is the brands that franchise already have a successful track record, but they didn't necessarily start out that way. So what factors do play a key role in this surprising statistic?
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