How to do due diligence before selecting a Franchisor

footprints-franchising-diligance

It is absolutely imperative for a prospective franchisee to thoroughly evaluate any claims made by a franchisor before entering into a franchisee relationship. An exhaustive due diligence will involve examining both the quantitative as well as the qualitative aspects of the prospective relationship. In fact a 360 degree audit based on information available from a) the franchisor b) other franchisees and c) third party resources can go a long way in risk management. Here is a handy guide that lists the various aspects you should examine before entering into a pre school franchisee relationship

Financial aspects

For any business, a detailed understanding of its financial viability is foremost. While a pre school franchisor may make a number of claims on the financial sustainability of the business, here are some aspects you should examine closely:

  • Start up costs– Ensure that there are no hidden elements when it comes to start up costs. Ever so often, the franchisor may not include costs like rentals, deposits, flooring costs etc in a bid to minimize the investment on paper. Post entering into the franchisee arrangement, these hidden costs can go a long way in impacting first your cost budget and later, bottom lines
  • Running Losses- While the first year typically means incurring running losses, often these are not budgeted in the P&L and come as the shock to the franchisee. Ensure the first year losses are factored into the costs so that you have a realistic idea of the break even period.
  • Admission Guarantee- Remember to check whether the admissions are just a hypothetical number on the P&L or whether the franchisor is giving a written guarantee. A franchisor brand that has a proven track record and is sure of its offerings, will never hesitate in offering a written guarantee of the number of admissions it will be able to drive.

 

Brand Equity 

An aspect, as important as ascertaining the financials is ascertaining the brand equity of the franchisor. A strong equity will go a long way in areas such as impacting the number of admissions as well as helping you charge a premium in the fee, both of which, in turn, will positively impact the financials. Clearly the way to go in the pre school business is to deliver value and to be able to charge a premium for it. For pre schools who tend to indulge in attracting customers on account of low fee, sustainability becomes a big issue. It is therefore important to judge whether the brand equity of the franchisor allows you to operate in the quadrant of high value-high fee.

 

Sales and Marketing Support

One of the biggest advantages of becoming a part of a large pre school chain, is the sales and marketing support that helps in first generating leads and thereafter helping in conversions. As a stand alone school, you may not be able to compete with the advertising budgets that larger players have. Remember, however, to go over the sales and marketing plan in detail with the franchisor to ensure that you stand to gain substantially on this account.

 

Support infrastructure 

Running a pre school amounts to undertaking a host of administrative processes. Ensure that the franchisor hand holds you and offers you automated systems that add to your operational efficiencies. Some of the robust systems that you need to look for include automated HR, IT and accounts processes.  They also need to be able to provide you with robust data by way of parameters such as conversion rates, child attrition and more which give you an overview of the business and allow you to focus on critical areas.

Recruitment & Training support 

Two aspects that can make or break a pre school business is its curriculum and the quality of teaching staff. It is therefore crucial that you thoroughly evaluate the kind of curriculum that it offers and whether it is well-researched and proven. Also, it is important to determine the support being rendered in terms of recruitment of quality teachers as well as the training support being offered to keep their skills updated.  Left on its own, this can become a major pain point and ultimately will impact the learning being imparted and finally the commercial viability of the project

  • A systematic and exhaustive evaluation of all the above parameters will ensure that you do not go wrong in your entrepreneurial venture. Here’s wishing you the very best!