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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7 “Can’t Miss” Provisions in the Franchise Disclosure Document (FDD) for Prospective Franchisees

May 26, 2021

When buying a franchise, it is important to review the franchise disclosure document (FDD) in its entirety. Each of the FDD’s 23 “Items” contain information that is relevant to prospective franchisees’ buying decisions. But, as with most legal documents, certain provisions are potentially more impactful than others, and franchise buyers will want to pay particular attention to these provisions during their due diligence. In this article, franchisee attorney Jeffrey M. Goldstein highlights seven “can’t miss” provisions of the FDD.

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What Are the Key Takeaways from Item 20 of the FDD?

May 14, 2021

Item 20 of the Franchise Disclosure Document (FDD) provides an overview of the status of a franchise system. Its tables disclose the number of active franchises, terminations, non-renewals and closures over the past three years, as well as the number of franchisees who have signed agreements but not yet opened and the franchisor’s projections for the upcoming year. These are all valuable pieces of information, and they allow prospective franchisees to gain some important insights with the help of an experienced franchise lawyer.

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Building Fairness in Franchising: A Look Ahead to Possible Reform

Apr 30, 2021

Unfairness in the franchise relationship is among the key factors that lead to franchisee failures. Without the information, support and legal protections they need, franchisees can struggle to earn a reasonable profit, and they can face substantial losses when their franchises fail. A recent congressional report discusses potential solutions to the current unfairness in franchising—including what franchisors, federal regulators and state authorities can do to help protect franchisees. Here, franchise lawyer Jeffrey M. Goldstein summarizes some of the most notable recommendations from the report:

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7 Options for Financing Your First Franchise

Mar 31, 2021

Buying a franchise is a bigger investment than most people can afford on their own. Fortunately, there are a variety of financing options available. However, each of these options comes with certain risks and limitations, and prospective franchisees must think carefully about which option makes the most sense for their individual circumstances. An experienced franchisee lawyer can help you make an informed decision when it comes to choosing between options including:

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7 Commonly-Overlooked Issues in the Franchise Agreement

Mar 29, 2021

When buying a franchise, one of the most important steps in the due diligence process is to carefully review the franchise agreement. The franchise agreement governs the terms of the relationship, and it covers everything from the opening deadline to the franchisee’s obligations post-termination. Given the importance of the franchise agreement – in addition to its density and complexity – the best way to ensure that you understand its terms is to hire a franchise lawyer to review it for you.

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Buying a Franchise in the U.S. With an E-2 Visa: An Overview

Feb 26, 2021

For individuals who live in a treaty country and are thinking about starting or acquiring an existing franchise in the United States, one of the first steps is often to apply for an E-2 visa. The E-2 visa is available to foreign nationals who are prepared to invest “a substantial amount of capital” in a U.S.-based business. Due to the benefits that a franchise can offer, many foreign investors choose to pursue a franchise as a means for obtaining an E-2 visa. Here, franchise lawyer Jeffrey M. Goldstein provides an overview of the E-2 visa requirements as well as some other important considerations for buying a franchise in the United States.

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