Another Good Franchise Due Diligence Post in WSJ
Another very good article talking to required potential franchisee due diligece was published by the Wall Street Journal today. Written by Professor James Schrager at the University of Chicago (Booth), it notes the need to consider multiple scenarios of projected business outcomes of a franchise investment.
As I've opined many times, it is critical to look beyond the P&L (which many franchisors focus upon) and project balance sheet outcomes. Will you run out of cash? Can you cover both the principal and interest payments? Even as a amount of cash is injected as equity, that cash should earn a return over the investment term. It is not free money. Another critical variable is will out year capital expenditures, that is remodeling, and brand upgrade mandates, be funded?