Search Results: due diligence

Franchise Due Diligence During the COVID-19 Era: How Can You Still Make an Informed Decision?

Jan 13, 2021

Attending large franchise conventions and visiting the franchisor’s headquarters are two hallmarks of the franchise due diligence process. They are also two events that have largely been put on hold during the COVID-19 era. But, franchisors are still selling – and franchisees are still buying – and those who are thinking about buying a franchise must still perform thorough due diligence in order to make an informed buying decision.

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Franchise Due Diligence: Getting the Most Out of the Item 20 Disclosure Tables

Feb 12, 2018

If you flip through a typical Franchise Disclosure Document (FDD), most of what you will find is page after page of small, dense text that was clearly written by an attorney. However, things change (briefly) when you get to Item 20. In Item 20, franchisors are required to produce a series of five standardized tables that provide historical information, current information and future projections about the size and growth of the franchise system. Carefully reviewing the data in Item 20 can tell you a lot about a franchise system. Has it grown consistently over the past three years? Have franchisees been leaving the system on a regular basis? Is the franchisor focused on expanding through franchising or company-owned outlets? You can gain insight into these issues and more through Item 20 of the FDD. Breaking Down Item 20 of the Franchise Disclosure Document (FDD) 1. Systemwide Outlet Summary The first table in Item 20 is labeled, “Systemwide Outlet Summary,” and it simply compiles data from tables three and four.  Here you will find: The total size of the franchise system (including franchised and company-owned outlets) The net change in franchised outlets for each of the past three years The net change in company-owned outlets for each of the past three years All of this information is important for assessing the health of the franchise system as a whole, and the later tables provide information that is specific to your state. 2. Transfers of Outlets from Franchisees to New Owners (other […]

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How to Gather Information from New and Existing Franchisees During Your Due Diligence

Jul 21, 2017

In a previous article, we highlighted the importance of asking questions during the due diligence process, and we discussed four types of issues that demonstrate why franchisees should not rely on franchisors’ Franchise Disclosure Documents (FDDs) and marketing materials alone. We also mentioned the importance of talking to both current and former franchisees. This article covers some basic tips and questions to ask when contacting current and former franchise owners. How to Find Current and Former Franchisees But, before we get ahead of ourselves, how do you contact current and former franchisees? Fortunately, the requirements of Item 20 of the Franchise Disclosure Document (FDD) make this simple. In Item 20, franchisors must disclose contact information for: Current franchisees, Franchisees who have left the system within the past year, and Franchisees who have not communicated with the franchisor within the past 10 weeks. When contacting these individuals, keep in mind that they may have additional references as well. They may have an older version of the FDD that they are willing to share; or, they may know of other current or former franchisees who can impart particularly-valuable information. Questions to Ask Current and Former Franchisees During Due Diligence Once you start reaching out to current and former franchisees, what types of questions should you ask them? Here are some general recommendations: 10 Questions for Current Franchisees Has the franchise opportunity met your expectations? In what ways is operating your franchise different from what you expected? Are you consistently able to meet […]

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10 Key Considerations for Due Diligence in Purchasing a Franchise

Nov 1, 2016

When considering a franchise opportunity, it is critical to conduct your due diligence. Buying a franchise is a substantial, long-term investment, and your success or failure will hinge in large part on the actions, omissions and obligations of your franchisor. Franchise due diligence is an involved process that takes time, effort and a commitment to finding real answers instead of simply trying to validate your interest in the franchise. The following is a list of 10 examples of steps prospective franchisees can take to learn more about their potential franchise opportunities: Franchise Due Diligence: 10 Steps 1. Talk to Current Franchisees. How are their businesses doing? How long did it take them to become profitable? How supportive is the franchisor? Current franchisees can provide invaluable information to help you decide whether to pursue a particular franchise opportunity. 2. Talk to Former Franchisees. Former franchisees are a key source of information as well. Why did they leave the system? Would they do it again if they had the chance? What is their opinion of the franchisor? 3. Visit the Franchisor’s Headquarters or Company-Owned Location. The in-person visit is an important step in the due diligence process. You will want to meet the franchisor’s key personnel in person, and see if you think you will be a good fit for the way they do business. You should also try to visit several franchised locations. 4. Review the Franchisor’s Franchise Agreement and FDD. While you should hire an attorney to review the franchisor’s […]

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Should You Start a Franchise as a Side Hustle in Chicago?

Jan 24, 2024

Many people buy their first franchise after getting fed up with their jobs. They get tired of working for someone else, and they decide that they are willing to take the risk of quitting in order to try something new. But this approach isn’t right for everyone. If you aren’t ready to quit your job—at least not yet—you might be thinking about starting a franchise as a side hustle. Here, Chicago franchise attorney Jeffrey M. Goldstein explains what you need to know.

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What is the Most Important Clause in Your Franchise Agreement?

Dec 22, 2023

When you are going through the process of buying a franchise, it is critical to review the franchise agreement. Not only will the franchise agreement govern your relationship with your franchisor, but it will also dictate what happens if something goes wrong. Will you be required to use designated suppliers (even if you can find lower prices elsewhere)? What will you need to do in order to renew? Will you be required to arbitrate in the franchisor’s home state in the event of a dispute? Will you be liable for liquidated damages if the relationship ends prematurely?

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Buying a Franchise in 2024: What Do Prospective Franchisees Need to Know?

Dec 15, 2023

So, you’re thinking about buying a franchise in 2024. What do you need to know? Buying a franchise is a major investment with significant legal financial implications—so it is critical that you make an informed buying decision. Here are some key insights from franchise attorney Jeffrey M. Goldstein.

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Should You Buy a Seasonal Franchise?

Nov 23, 2023

From stores that sell Halloween costumes to stores that sell winter holiday décor, we see lots of seasonal businesses pop up this time of year. Recently, we have seen a trend of businesses offering holiday decorating services as well. Many of these stores are franchised outlets. If you are interested in owning a holiday-centric business, is a seasonal franchise right for you? Here are 10 key considerations from franchise lawyer Jeffrey M. Goldstein.

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What Makes You a “Good” Candidate for a Franchise?

Aug 17, 2023

As a prospective franchisee, you want to put your best foot forward. Once you do your preliminary research and decide on the franchise concept you want to pursue, you want to make sure you give yourself the best chance possible to move forward with an acquisition. While some franchisors are desperate for franchisees, these probably aren’t the franchisors you want to consider (at least not without being very careful). On the other hand, if a franchisor only has a select few desirable territories left in your area, you will want to do everything you can to make sure you don’t miss out on a good opportunity. 

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Health and Fitness: Is 2023 the Year to Invest in a Franchise?

Jun 30, 2023

The health and fitness industries are booming. Both industries remained relatively strong through the COVID-19 pandemic (though many fitness brands had to find alternate ways to meet their customers’ needs during mandatory closures), and recent data suggest that both industries are poised for success in 2023 and beyond.

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