Questions to Ask During Business Coaching Franchise Due Diligence
Today I want to answer a question that we hear frequently from prospective business coaches: what are the most important questions I should ask while doing my business coaching franchise due diligence?
There are many important questions you can ask in the due diligence process, but here are the top three:
1. What Kind of Success Rate Do Your Coaches Have?
Whether you like it or not, you’re going to be a statistic–either of success or failure. You owe it to yourself to find out if the stats are in your favor.
My business partner and I were involved in the business coaching franchise industry for more than decade, and between the two of us, we served seven business coaching franchise systems in various capacities. In our experience, business coaching franchise systems have around a 50% failure rate. Perhaps that’s a bit surprising because there’s a sense that business coaches should know better than that, but it is what it is. One of the business coaching franchises I was involved in had a 57% failure rate. We eventually brought in down to just 4%, but that’s not common. You need to find out what the failure rate is in the franchise you’re considering, and you need to be practical about the fact that you’re probably not the exception to the rule.
Here’s what I recommend: get the Franchise Disclosure Document (FDD) and actually look at the numbers. Look at the number of units they’ve sold, closed, or resold and compare that to the number of units in operation. A lot of times when the franchise owner fails, they will sell or close their franchise, and that has to be reported on the FDD. Do the math and you’ll get a pretty good sense the failure rate.
In addition, start calling the franchisors in the FDD. I’m not talking about the three or four more names that the sales reps gave you. I mean, call all of them. If coaches aren’t answering their phones, leave a message and say, “Hi there, I’m interested in the possibility of buying your franchise.” You’ll start to get calls back, believe me. Then ask them about their experience. You’ll start to get a sense for how things are really going for the majority of the franchisees.
2. What Kind of Support Will I Get Over the Long Haul?
After you buy a franchise, most franchisors send you to a training intensive. It’ll be in a posh hotel to make you think you’ve become a part of something really special, and if you’re like me, you’ll return home totally energized and ready to go.
But that’s where the rubber meets the road.
In the vast majority of business coaching franchise systems, the people who sold you the franchise are the same people assigned to support you. That’s a problem, because they’re not business coaches–they’re salespeople. When you hit month six, 12, or 18, and you’re struggling through some rough patches, you need a mentor who really knows the business.
So what can you do? Again, call the people who are already franchisees and ask them how they’re doing, how much money they’re making, how many months they’ve been in the business, and if they’re getting the coaching, support, and training they need. Ask if the people teaching the business are they, themselves, successful coaches. Call at least 20 coaches and find out what’s really going on behind the scenes.
3. What Kind of Limits Will Be Placed on Me?
It might not seem like it right now, but this is a big deal. Because no matter who you are, at some point, you’ll want to leave the franchise. Maybe you’ll stay for five, seven, even 10 years–but the time will come that you’ll be ready to move on. Find out what limitations will be placed on you when that time comes. Most, if not all, business coaching franchisors require you to leave business coaching entirely when you leave the franchise. If you still want to be a coach, this could derail your entire career.
Or what if you don’t do well? Will the franchisor require you to continue paying $1500-$2000 a month in franchise fees, even if you’re not making money?
Get a good franchise attorney (NOT a business law generalist, but a franchise law specialist) and have them sit down with the contract and point out all the potential pitfalls. Then, negotiate the contract to better terms for you. This a mistake a lot of business coaching franchisee prospects make, and I’ve seen it create serious problems down the road.
Want to know more tips and tricks like these as you consider purchasing a business coaching franchise? Download my free ebook, The Business Coaching Franchise Buyer’s Guide, about what you should look for in a business coaching franchise, and how to do effective due diligence.