5 Franchise Due Diligence Mistakes Nobody Warns You About

This is a transcript from Episode 48 of The Franchise Champion Show.

Listen to the full episode on Apple Podcasts, Spotify, or YouTube.

Alan: In 15 years of franchising and franchise coaching, I've watched people lose time, money and real opportunities to the same five mistakes. And the thing that gets me every time is that none of them are inevitable. Every single one is avoidable if you know what to watch for.

So that's what this episode is. The five mistakes I see most often, and what to do instead.

Welcome to The Franchise Champion Show. I'm Alan Regala, former D1 athlete, Stanford engineer, and franchise owner who built and sold a multi-million dollar business. I created this show to help driven individuals like you find the right franchise and learn how to build wealth and reclaim your time.

Mistake One: Loving It as a Customer

All right, let's start with the most common one. Someone finds a franchise they love as a customer, and they decide that's the one they want to own. I get it, it makes sense on the surface. You're excited about it, it's easy to explain to your friends and family, and that excitement feels like a good sign.

But loving a product as a customer is completely different from loving to run a business that delivers it.

I have a colleague who is also a franchise coach. One of her clients was deeply into healthy eating, and she purchased a custom salad bar franchise. She was passionate about the concept. She believed in it. And then she opened the doors.

What she found pretty quickly was that she couldn't stand managing the volume of staff that comes with a food business. Younger employees, constant turnover, all the nuances that are just part of that industry. It wasn't what she expected, and it wasn't what she wanted to do every day. So she sold it within the first year.

The business wasn't wrong. The fit was.

I see versions of this all the time. The fitness lover who buys a gym but hates managing hourly employees. The food enthusiast who opens a restaurant but can't handle the margins, or the 5 a.m. starts. Here's the thing, passion gets you through the first few months. Strategic fit is what determines whether you're still happy five years in.

So what do you do instead? You start with an honest self-assessment before you look at a single brand. What are your actual skills? What does your ideal day look like as an operator? What ownership model fits your life? What do you actually enjoy about work? When you start there, passion tends to show up anyway, even if the business itself isn't the one you would have picked on instinct.

Mistake Two: Doing Too Few (or the Wrong) Validation Calls

Most people know they're supposed to do validation calls. That's talking to existing franchise owners. The mistake isn't skipping them. The mistake is doing too few, or only talking to the owners that the franchisor puts right in front of them.

I have a friend who bought a franchise before I got into coaching. He went through the process, spoke to a handful of owners from the franchisor's recommended list, and felt good about what he heard.

What he didn't know was that the recommended list is almost always the top performers, the franchisees who are doing well and feel good about the brand. What he missed was the capital reality, specifically how much it actually takes to scale a business, not just open it. There were details he would have learned from mid-tier and maybe underperforming owners that the top performers either didn't remember or didn't think to mention, because they'd already solved those problems years ago.

And here's something I want you to hear. Validation calls don't always tell you not to buy. Sometimes they just set your expectations properly, so you go in knowing what you're actually signing up for. No surprises six months in that every owner in the system could have warned you about.

On the flip side, talking to top performers about what they did in year one, the behaviors and mindsets that led to early traction, that's some of the most valuable intelligence you can gather before ever signing.

So here's what I recommend. Talk to eight to ten owners minimum, across different regions, perhaps similar to the area that you're in. Different performance levels, different amounts of time in the system. Don't only take the names the franchisor gives you.

Ask specific questions. What do you wish you'd known before buying? How long until you were cash flow positive? Where does the franchisor fall short? Would you do it again? Take notes. Compare the answers. The patterns that show up across multiple owners are the ones worth paying attention to.

Also pay attention to whether the owners are similar to you, as far as mindset goes and the decisions they've made. Are the ones who are more similar to you the top performers, mid-tier, or underperformers? That provides information as well.

Before we get into the next one, I want to mention something quickly. I put together a free guide that covers all five of these mistakes in more detail, with specific questions to ask and steps to take at each stage. It's called The Five Mistakes That Prevent You From Finding the Right Franchise, and you can grab it free at athletetoowner.com [link to be confirmed], no cost, no obligation, just the framework. All right, back to the mistakes.

Mistake Three: Skipping Realistic Financial Planning

The third mistake is not planning for realistic financials. The FDD, or the franchise disclosure document, tells you what it costs to open. It does not tell you what it costs to survive the ramp up and reach your actual goals.

There's a dog training business not far from where I live. Got great reviews. You could tell these people genuinely loved what they were doing, and the customers loved it too. They were open for about a year to a year and a half, and then they had to close. Not because the business was bad. Not because customers didn't like them. They ran out of cash while the client base was still building, and at the same time, the lease was due, and their personal bills weren't stopping.

That's undercapitalization, and it's the number one cause of business failure, including franchise failure.

Here's something that surprises a lot of people. You can have a profitable business on paper that is running out of cash in practice, just because of the timing mismatch between when clients come in, when you get paid, and when your fixed costs are due. And especially if you're growing and you need to consume more, you have higher expenses before the cash comes in.

This also connects directly back to mistake number two. If my friend had talked to more mid-tier owners during validation, the capital reality could have come up. These mistakes don't happen in isolation. They compound.

So what do you do? Plan for six to twelve months of working capital beyond your initial investment. Not just what it takes to open, what it takes to survive long enough to win. And if you plan on scaling the business and adding more territories and vehicles and all that, you want to factor those in as well.

Model your actual income goals. If you want $300,000 in profit, but one territory generates $125,000, you need a multi-unit plan from day one, not something you figure out later. And stress test your numbers. What if revenue comes in 30% lower than projected in year one? What does that look like? Can you still make it? Know the answer before you sign.

Mistake Four: Waiting Too Long to Bring In Your Spouse

Mistake number four is waiting too long to bring in your spouse. This one is a little uncomfortable to talk about, because it touches the relationship, not just the business. But it's one of the most predictable ways a good opportunity falls apart.

I had a client who was confident he was the decision maker. His wife was never part of the process. Not in any of our coaching calls, not in the franchisor presentations, not in any of the due diligence conversations. He did it all alone, and he felt good about where he landed.

The night before he was supposed to sign the franchise agreement, he had a real conversation with her. And it wasn't about the money. It wasn't about the type of business. It was about his time. She was building her own career, making real progress at her company. She needed his flexibility with the kids, the school pickups, the after-school activities, all of it. And she knew that once he was running a business, especially in those early years, that flexibility was going to look very different.

So he didn't end up signing.

Here's what I want to say about that. By the time she was in the room, she was either approving or vetoing something he'd already fallen in love with. That's not a fair position to put someone in. If she had been part of the process earlier, that conversation about time could have happened in month one, and they might have found a business model that worked for both of them.

One more thing worth saying. Your spouse may see things about you that you can't see yourself, your personality, your blind spots, how you handle stress. That's valuable input to have early in the process, not just at the end.

Bring them in at the goal setting stage, before you look at a single brand. Make it a decision you're building together, because it affects both of you either way.

Mistake Five: Expecting the Franchisor to Make You Successful

Mistake number five, expecting the franchisor to make you successful. This is the mindset mistake, and it's the one that underlies all the others.

The way that franchising gets sold, proven systems, established playbook, built-in support, it's easy to walk in believing that following the model is enough, that the heavy lifting has already been done for you. And when something goes wrong, which it will in any business, it's natural to look at the franchisor and say, well, you're supposed to have figured this out.

I saw this in the ShelfGenie system. I see it everywhere. Franchisees who are underperforming and pointing at the system, at support gaps, at things that might legitimately be missing. And sometimes they're not even wrong about the gaps. But here's the thing, being right about the gap doesn't get the problem fixed. Getting the problem fixed gets the problem fixed. The goal is to get it right, not to be right. Those are two very different things.

The franchise gives you the blueprint, the roadmap, the systems and processes that have been tested and refined. But the franchise can't hire your people. It can't train your team. It can't lead your organization. That part is yours.

And here's the flip side, because this cuts both ways. I've seen operators drop into a system that has real support gaps, a franchisor that's still figuring things out, training that isn't fully documented, processes that aren't where they should be. And those operators still built something successful, because they weren't waiting for the franchisor to make them successful. They used what was there and figured out the rest. If you have that mindset going in, you can be successful in almost any system.

This is what I call accountability in the HiPer8 framework. I own my actions, my inactions, and their results. That principle doesn't have an asterisk for when the franchisor falls short.

Before you sign anything, ask yourself honestly, am I ready to take full ownership of my results, regardless of what comes up? If the answer is yes, you're starting in the right place.

 Those are the five mistakes. And I want to say one more time, these aren't about intelligence or effort. I've seen smart, hardworking people make every single one of them. They happen because this process is unfamiliar, and there's a lot riding on getting it right. Knowing they exist is most of the work.

If you want to know where you actually stand before you go any further, I built a tool called the Franchise Owner Fit Assessment. It's fifteen questions on financial and ownership readiness, and it takes about five minutes. It'll give you an honest picture of where you stand right now. You can find it at athletetoowner.com/fit.