Late last year, I spent two highly energizing, long planned weeks on a strategic business trip to Mexico City to explore expanding into the region.  The Mexican market has amongst the highest growth potential for the franchise business model outside North America.

In each of the last five years, growth in franchising in Mexico has been between 13% and 17% per annum. The Mexican market is also very accepting of both U.S. and Canadian brands, providing a great exporting opportunity.   MatchPoint will work with locally recruited consultants to develop local brands for this market as well. 

With the experience of the successful establishment of our UK and Ireland MatchPoint Franchise Consulting Network, we know our business model works in the international environment. We have opened the New Year 2011 with the recruiting of our first Mexican-based consultant and have two more appointments in the pipeline.  We expect to have two dozen by the close of 2011.

This strategic direction for MatchPoint, taken some time ago, was very much reinforced by a meeting with the former Mexican president Vicente Fox, in early April 2010.  We discussed the significant growth potential of the Mexican franchise market during the Latin American Entrepreneurship Forum at Babson College in Wellesley, Massachusetts.  That Vicente Fox is a great believer in the franchising model is hardly surprising.  His dramatic and successful career in business and his rise to the top of Coca-Cola de México is well documented.  He expressed his firm belief  that franchising will continue to contribute to the future economic growth of Mexico.

Legislation in Mexico has adapted and evolved as franchising, particularly that of local Mexican brands has become more widely known in the last 20 years.  It has also taken into account the protection of franchisees and would-be investors in this attractive and resilient small business model.

 I founded MatchPoint Franchise Consulting Network in 2006 with a mission of helping companies expand their franchise networks and improve their system profitability.  That mission included improving the quality of new Franchisees coming into the system.

Advice is offered freely to franchise buyers by MatchPoint consultants and can be vital to you in making a better, prudent, buying decision.  The advice offered by our consultants does not make us lawyers; it is there to help you, with a high quality due diligence process.  It is an effective hedge against the misrepresentation and fraud sometimes propagated by less than reputable business opportunity marketers.  

MatchPoint consultants trained by Nigel Mayne know the red flags in the investment field.  It takes the very few promoters that practice business fraud to taint the dream of an individual and their family.  

That`s why seeking the independent advice of an expert franchising consultant is wise and invaluable from the start of your due diligence process. 

Starting up in your own business or expanding a home based activity into a reliable, steady and satisfactory income stream is a challenge made tougher by the wide range of opportunities that seem to be available. Maybe you have already searched the internet for small business opportunities and found a wealth, even an overload, of interesting leads.  Which ones match your skill set and which are the ones to walk away from for a number of reasons not overlooking the risk of fraud?

Franchises attract many new investors because the business is established and proven, the learning curve for the entrepreneur is minimised and marketing resources, training and operating procedures get the new venture off the ground faster.

In your initial search on the Internet you will soon encounter many leads for franchise investment, possibly an overwhelming number depending on which country you are focussing your effort.  In the Annual Franchise Development Report produced by a US media group, the internet is the top sales producer, with an increasing amount being spent on advertising franchises using social networking sites.

The franchise business model has, for more than a decade, been well established in North America (the USA and Canada), in the UK, Ireland and Australia in more recent years and growing fast, and now in many European and South American countries, all with various forms and levels of legislative and administrative controls to protect the buyer/investor from the various possible risks encountered in all business models including commercial fraud.

Determining what you can afford or what you could afford to lose, some cynics say, will provide you with the short list of potential franchise opportunities.  The well meant advice relates to the hard fact that in the US nearly 90% of all new businesses fail within 3 to 5 years and not specifically to new franchises.  As with all business models, investing in a franchise carries a level of risk. However note that, by comparison with the statistics available and mentioned above for new businesses, the US Dept of Commerce studies show that, on the contrary, over 90% of new franchised businesses are in operation after more than 5 years.

MatchPoint Franchise Consulting Network was founded in 2006 with a mission of building the world’s most successful international network of franchise consultants representing the industry’s premier franchise brands.  We achieve this through delivering value as a trusted partner to the best franchise brands, and offering high-value services to our prospective franchisee clients.

The advice offered freely to franchise buyers by MatchPoint consultants is vital to the buyer in making a better, prudent, buying decision.  The advice offered by our consultants does not make us lawyers; it is there to help the investor with a high quality due diligence process.  It is an effective hedge against misrepresentation and fraud sometimes propagated by less than reputable business opportunity marketers.  

 

For the new investor, not having to start a new business from scratch offers significant advantage, both in time taken to earn a return and in initial investment cost.  Marketing costs are expected to be reduced.  Of course it’s in the interest of the franchisor that quality franchisees succeed and the franchisor support offered is a quantifiable attraction.  How does that investoruse the due diligence process to reduce risk?

The relationship of the investor franchisee with the franchisor will and must be ongoing.  As with any contractual arrangements it should go without saying that both parties to the contract must honor it.  Disputes arise in the best of relationships and some may give rise to litigation  initiated by either party on the basis of fraud   Here are five key areas where risks not well controlled may destroy the dreams of the franchisee from the commencement of contract.  Some will be familiar to the first time investor as a risk for any entrepreneur; but all warrant that second take.

1.     Make sure to look only at quality franchise offerings.  The new to franchising investor should forget the passion for a particular business and try to be more objective.  Just as too popular franchises will be more expensive, may be subject to passing fads, or have fierce competition alongside the sales territory defined in the proposed contract, there are the few franchisors that are known to someone as ”sharp operators.”   Every franchise offering could have a number of unhappy, unsuccessful franchisees who may claim to be subject to fraud.  Speak to Franchisees.  Is there a pattern to the complaints?  If the complaints make the investor uncomfortable this is an alert to move on to another option. The relationship with the franchisor must be built on trust and respect.

2.     There should be a check whether the franchise principals have any history of litigation.  Disputes over failure to perform can arise from either party’s perspective.  Franchising is a very litigious business and most franchise companies will have some history of legal actions but it’s important to separate fact from fiction (as the internet is filled with both).  Was the franchisor looking to enforce their agreement to protect the brand and the system, or were they taking advantage of the franchisees?  It is important to the franchisee to understand the competition.  The investor`s lawyer may alert the investor to signs of undue competition. But what if the competition represented in various initial discussions about marketing does not in fact exist?  Are there other flags of fraudulent practise of which the investor should be aware?   

3.     Franchisees must go in with eyes wide open. Use of detached, competent and professional help to draft the franchisee`s own business plan and research on earnings forecasts is an essential step  as a protection against fraud on the part of the franchisor – especially internationally where FTC type protections are non-existent.  Breakeven analysis and less optimistic scenarios must be included and the investor should not place reliance solely on the information provided by the franchisor, no matter how well known that particular franchise may be.  In lower cost and lesser known franchise offerings, earnings performance may relate to the strengths and skills of the buyer; then again an optimistic earnings scenario provided to the potential investor may also be a flag of fraud.  The investor should prepare a detailed assessment of initial investment costs and compare that with the data which must be requested from the franchisor.

4.     There is a greater risk inherent in considering a start up franchise.  It is in the interest of the inexperienced would be franchisee to choose a business for due diligence with a track record over a minimum of 4 to 5 years, with a minimum number of currently operating franchise units.  Should the support and expert advice of a franchise consultant not be sought out at an early stage, there will be a need for basic legwork such as visiting the head office of the franchisor and viewing the training material for oneself.

5.     To quote an old adage, the devil is in the detail, even before a study of the draft contract is the next step.  Researching important detail early in the due diligence process will make the intended franchisee less concerned about the possibility of fraud.  They should be comfortable with the quality of training and support provided, where it will be provided and for how long.  A promise to send on the material later should be regarded as just that, a promise, and should be made good promptly.  Delays in the provision of any paperwork agreed to be provided should alert the would be investor and their advisors and the franchisor challenged at an early stage in the process.

MatchPoint Franchise Consulting Network was founded in 2006 with a mission of building the world’s most successful international network of franchise consultants representing the industry’s premier franchise brands.  We achieve this through delivering value as a trusted partner to the best franchise brands, and offering high-value services to our prospective franchisee clients. The advice offered freely to franchise buyers by MatchPoint consultants is vital to the buyer in making a better, prudent, buying decision.  The advice offered by our consultants does not make us lawyers; it is there to help the investor with a high quality due diligence process.  It is an effective hedge against misrepresentation and fraud sometimes propagated by less than reputable business opportunity marketers.