Does the franchisor have the knowledge and experience required? You are essentially paying to leverage the franchisor’s knowledge and experience so this is crucial.
2 – Previous & Current Litigation
Has the franchisor been involved in any previous litigation, or are they currently involved in any litigation? You need to know that the franchisor has not been (or is not going to be) impacted by an adverse result, as this would severely impact their financial position and the future of the franchise.
3 – Reputation
What do the other franchisees have to say about the franchisor? You should reach out to as many franchisees as possible and ask questions about the training they were provided, any disputes, ongoing support and their current financial situation. The Franchise Disclosure Document (FDD) should contain a full list of all the current franchisees and their contact details if it doesn’t, this is an indication that the franchisor might be hiding something.
4 – Previous Franchisees
How many other franchisees have exited the franchise system? The Franchise Disclosure Document will most likely not contain the contact details of previous franchisees who have since left the system. For this reason, you might need to do your own research to locate these franchisees to find out why they left as doing so could trigger a number of red flags.
5 – Numbers
Do the numbers stack up? Going over the franchise’s finances, profit and loss statements and balance sheets is a job best suited to an Accountant or Lawyer. If you do not have financial experience, you should have someone else review the Franchise Disclosure Document. You need to determine that both the franchisor and franchise system is in a financially strong and stable position, in order for the franchise to continue to grow and thrive.