due diligence Tag

If you are buying into a franchised system, it will be important to ensure two things:

1. That the Franchisor is performing well; 2. That the Franchisee's existing business (if any) is performing well, within the franchise system.

Franchisor Performance

These investigations are part of your due diligence. There is more to due diligence than having your lawyer check the contracts and your accountant check the figures. Obviously these things need to be done and it would be foolish to consider a purchase without these checks however, you, also have a role to pay.

Every Franchisor is obliged to keep a current disclosure document. That disclosure document is a very useful source of information for you. It should, if properly written tell you if the Franchisor has been terminating franchises and if franchises have been failing or disputes have been brewing. It will tell you the experience level of the Franchisor and much more. If you do not understand the disclosure document then you should get assistance. If the disclosure document is not well written this should be a warning to you.