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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Franchise Direct Publishes 2022 Business Services Franchise Industry Report

Jun 28, 2022

Franchise Direct recently published its Business Services Franchise Industry Report for 2022. The report contains some notable data and insights for individuals who are thinking about buying business services franchises this year. Here are some of the highlights from Chicago franchise attorney Jeffrey M. Goldstein.

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10 Terms You Need to Know to Understand Your FDD and Franchise Agreement

Jun 23, 2022

If you are thinking about buying a franchise, you will need to familiarize yourself with some basic legal terms in order to understand the Franchise Disclosure Document (FDD) and franchise agreement. Here is an introduction to 10 key terms from national franchisee attorney Jeffrey M. Goldstein.

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“Hot” Franchise Concepts Headline 2022 IFE

Jun 21, 2022

The 2022 International Franchise Expo (IFE) recently took place in New York City. In an article recapping the event, the Franchise Times notes that several “hot” concepts debuted at the show. While “hot” concepts make for good headlines, are they sound investments for prospective franchisees? National franchisee lawyer Jeffrey M. Goldstein shares his thoughts.

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7 Signs You Should Walk Away from a Franchise Opportunity

Jun 14, 2022

Choosing a franchise is a long and time-intensive process. Once you invest your time and resources in evaluating a particular brand, it can be difficult to walk away. But, sometimes you should walk away, as the time and resources you have invested to date are nothing compared to what you stand to lose in the future. Here are seven signs you should walk away from a franchise opportunity from national franchise lawyer Jeffrey M. Goldstein.

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Buying a Franchise in Your 30s: What Do You Need to Know?

May 27, 2022

While various sources report that most franchisees are in their 40s and 50s, franchise ownership is becoming increasingly popular with Millennials. In other words, if you are thinking about buying a franchise in your 30s, you are not alone. In fact, the Franchise Times recently published an article highlighting “[a] new wave of investors . . . storming the franchise mergers and acquisitions game,” all of whom are in their 30s.

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Should You Buy Into a Foreign Franchise System Targeting U.S. Expansion?

May 13, 2022

One of the biggest challenges for any business is offering a popular product or service while also standing out from the crowd. To succeed, businesses need to strike just the right balance between familiarity and novelty—and this is one of the reasons why franchising is so popular. Strong franchise systems offer a recognizable brand coupled with unique (often proprietary) and in-demand products and services.

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