Breaking Down the Due Diligence Process for Service Brands, Part 1

The due diligence process is a key component of properly vetting any franchise opportunity. While an array of differences exists between the business models of service-based concepts and product-based concepts like restaurants, many of the basics in due diligence remain the same.

Whether looking to become a franchisee for the first time or diversifying an existing portfolio, prospects must do a deep dive into the brand they’re interested in. This includes looking into the brand’s history and how long it’s been around, as well as the company’s culture and if its values align with yours. Here are a few areas to take a deeper dive into and consider when looking at a service brand.

Your "why"

When I meet with candidates, I always ask, "Why do you want to do this?" When determining your "why," think about what it is you are trying to achieve in the long term. Is it independence and having something that allows you to be hands-on, generate income, and work for yourself? Is it about the hard work of building a business to generate wealth and create a legacy that can be passed down to your family? Your “why” is all about your vision of your ideal lifestyle, your ideal future, and seeing what concept best fits into that vision.

Service brand business models are not one-size-fits-all. Some are a lower investment and modeled more like an independent job providing income; others have higher investments because they feature a more robust business model.

Many service brands have owner-operator models even if they are robust, multi-location businesses. This means you not only own the franchise, but you are an active participant in its day-to-day operations, either personally or through a trusted operating partner. It can be a more involved business model than restaurants, gyms and fitness centers, or real estate-driven concepts. Having a strong connection to your “why” is imperative in the decision-making process of franchising with a service brand because it will organically become a large part of your life.

Segmentation

Spending the majority of my career working with food and restaurant franchises, I saw firsthand that concepts within that sector are pretty well-defined. There’s the full-service restaurant category, the limited-service restaurant segment or fast casual, and the quick service or fast food categories. For service brands, it sometimes involves more in-depth research because the segmentation isn’t quite as clear, and service franchises can actually fall into a variety of different categories, depending on the concept.

Let’s use Pinch A Penny as an example. At the surface level, we are a swimming pool and spa brick-and-mortar retail brand. However, we also run service trucks from the retail location and provide pool cleaning, maintenance, and pool repair services. Additionally, our franchises offer an array of backyard services that includes power washing, landscape lighting, mosquito misting, or even pool renovation. Our franchisees can pick and choose which, if any, of these extra services to integrate into their business. Adding more services equates to more revenue, and we have many stores operating at three times our typical average unit volumes because they decided to offer more services to their customers.

It is vitally important when doing due diligence on a service franchise to look beyond the surface level and see what lies underneath. Is there opportunity to build out your service offering or territory? What kind of training and ongoing education will be available to you? Is there room for revenue growth or does it seem to cap at a certain point?

With the lack of published true comparison or comprehensive segmentation, it is key to do additional research on how certain brands grouped within the same category differ from one another. These differences can also vary broadly in terms of training and support.

Next time: More tips on due diligence for evaluating service brands: financials, scalability, competition, real estate, and labor.

Michael Arrowsmith is Chief Development Officer at Pinch A Penny Pool Patio Spa, where he spearheads the brand’s development efforts in key markets and drives new franchisee recruitment. He has spent the majority of his more than 25-year professional career growing franchise brands in the food/restaurant industry, holding senior-level executive positions with concepts like Captain D’s, Denny’s, and Checkers & Rally’s.