Buying a franchise in the UK involves several due diligence steps. Apart from studying the financial statements of the franchisor, you also want to reach out to current franchisees in the franchise network. This is where the process of franchise validation comes to the fore.
But if this is something you’re unsure about, this post has you covered. Here, we’ll touch on what franchise validation is, why it’s important, when and how to do it, how much you should spend on the process and more.
Let’s explore this topic together so that when you’re ready to invest your hard-earned funds in a franchise, you do so strategically and with all the necessary information at your fingertips.
What is franchise validation?
In the space of purchasing a franchise, one important but often overlooked aspect is carrying out franchise validation. But what does the franchise validation process include?
In short, franchise validation is part of a prospective franchisee’s due diligence process where they reach out and speak with current franchisees within the network, asking pertinent questions and getting straight answers, about the franchise opportunity.
So, if you’re wondering what is a franchise validation call, this is simply when a prospective franchisee calls between five and 10 current franchisees within the franchise network to discuss any aspects of the franchise business before signing the franchise agreement and after receiving the Franchise Disclosure Document.
The purpose of franchise validation is to help prospective franchisees study and acquire as much information about the franchisor to help them make an informed investment decision.
Why validate a franchise?
There are many reasons why a franchise should be validated and with this in mind, we now turn to what are the benefits from franchise validation. Among the perks of embarking on this process include:
- You can learn more about the franchise brand’s value
- You can have greater trust in the credibility of the brand
- You can determine the levels of support received by existing franchisees within the network
- You can get insights into the real-deal of running this particular franchise business
When to validate a franchise?
Although many prospective franchisees believe that franchise validation should only happen once before they pay their franchise fee and sign the franchise agreement, this is not ideal.
If one of the questions on your mind is how often to validate a franchise, the answer is that you should do so at different stages of your journey with the franchisor.
Yes, it is highly important that you carry out your due diligence and engage in franchise validation before you buy into the franchise opportunity.
However, other times you should do this include when you are thinking of expanding and purchasing more units, when you are considering extending the franchise term and when you are about to exit the franchise or re-sell it onwards.
How much should you invest in franchise validation?
The process of franchise validation can be lengthy and time consuming as you gather all the data from different franchisees to enable you to make a sound investment decision.
It can also entail certain costs. So, if you’re curious about how much you should invest in franchise validation, the industry ballpark figure is around 10% of your initial franchise fee.
This amount will ensure you have all the resources necessary to proceed with the franchise validation process and acquire the necessary information to help you make an informed decision.
How to validate a franchise?
And now we reach the crux of franchise validation: how to actually go about doing it. Firstly, you will need the franchisor’s permission to reach out to their franchisees as well as their contact details.
Next, you will want to make sure that you make appointments with as many as possible (between five and 10 franchisees is generally ideal), depending on the size of the franchise network.
Also important is to ensure that you speak to franchisees at different levels of their franchise journey.
For example, you’ll want to speak to a recently-started franchisee, one that’s been in the business for a few years and one or two that are considered veterans in the network due to their longstanding business relationship with the franchisor.
Once you’ve set up appointments and thanked the franchisees in advance for their time and willingness to speak with you, you need to show up to the call well-prepared.
This means having all the necessary questions to ask franchisees that will help give you greater clarity in this franchise business opportunity. Examples of the questions you could ask current franchisees include:
- How long have you been in the business?
- Are you working full-time in the business?
- Approximately how many hours per week do you spend in the business?
- How would you describe your adjustment to this business?
- What do you like best and least about this business?
- Did the franchisor help with or review your business plan?
- Are you happy with the way you communicate with the franchisor? Why?
- What were your financial projections and how long did it take you to reach these?
- Are your earnings in line with expectations?
- What do you know now that the franchisor didn’t tell you initially?
- What work did you do prior to franchising?
- What is your business background?
- Why did you leave to become a franchisee?
- Why did you choose this franchise?
- Was the training adequate to open the business?
- How would you rate your initial training and ongoing training?
- How would you rate your ongoing support?
- Have you had trouble hiring, training and retaining employees?
- What is a typical day like?
- What are your favorite and least favorite aspects of the business?
- How are you supported by the corporate team?
- If you need assistance, do you get it easily?
- What do you feel is the main function of the owner of this business?
- What do you think you could have done better in the first year?
- How do you rate your relationship with the franchisor?
- How do you rate the management of the franchise company?
- How do you rate the marketing and advertising and promotional programs?
- Does your location meet your customer’s needs?
- Who picked your site?
- How involved in site selection was the franchise company?
- How is the business doing, in relation to your business plan?
- How are you doing in your business?
- Are you pleased with your earnings? If the franchisor made earnings claims are your earnings close to that earnings claim?
- What would cause a franchise to fail?
- What could you do differently to increase earnings?
- Where do you see yourself in five years with this business?
- What would you do differently if you could do it again?
- If you had to do it again, would you decide to get into this industry? Why/why not?
- Do you own, or would like to own, additional units?
- Are you aware of any franchisees who are doing great with the business? Why?
- Are you aware of any franchisees that are not happy with the business? Why?
- How much can I reasonably expect to earn in my first year, second year, third year and onwards?
- Is there anything else that you would like to share with me or that you think might help me?
Conclusion
While the list of questions to ask franchisees is not exhaustive, it should give you a good foundation for starting the franchise validation call on sound footing. Remember that the more information you gather, the better investment decision that you are likely to make.
This means speaking to as many different franchisees as possible at different journeys on their franchise entrepreneurship path.
And for those of you who would like to join the lucrative property industry with your own franchise, just speak to us at Belvoir about our franchise opportunities in the estate agency franchise business.
Our incredible team is ready to answer all your questions and help you make the right investment decision for you. Get in touch with us today!
