The biggest mistake that prospective franchisee buyers have often made when they come to us at the Franchise Law Source is that they have decided to buy with their hearts, rather than with their heads. We urge our franchise buyer clients to take a brief step back and engage in the rigorous process of preparing a business plan for the franchise they intend to buy. In our view, the financial due diligence that the prospective buyer undertakes is the most important predictor of his or her success once the franchise is up and running. Often prospective franchisee clients have done little financial due diligence and have not put together a detailed business plan including a pro forma financial forecast. Before you invest, make a very detailed inquiry and determine for yourself if the profits you require are likely to result.

Examine All the Elements
In order to know what you are getting into, you must examine all elements of the finances of the business you are starting. We show clients with templates and personal counseling how to put together a business plan from the “ground up.” This means making a detailed pro forma profit and loss forecast in which every line item is based on empirical facts or estimates supported by hard data.

Your business plan may well include information far beyond the pro forma profit and loss statement, but the financial due diligence of business plan formation is the key to going into your franchise investment with your eyes open.

Contact the Franchise Law Source to understand:

  • What information you need to get;
  • Where you can get the information you need; and
  • How to compile all of that information into a useful business plan for your own guidance and for the support of your loan application.

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