Franchise Business Review Checklist reviews

June 16, 2022

Today, Patrick is going to go over an essential checklist you need and to share with you our franchise business review checklist. This checklist is really important for anyone considering buying a franchise here in the United States.

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00:00 Introduction
00:12 Federal Trade Commission
00:29 Review Checklist (1 to 5)
01:45 Review Checklist (6 to 10)
03:49 Items to check with your advisor
04:48 Conclusion
05:10 Subscribe!

#FranchiseBusinessReviewChecklist #VettedBiz

1- FDD Received Number one on the checklist, you need to receive the FDD of the franchise that you’re investigating.

2- Review of Item 3 (Litigation) Now that you have the FDD, let’s start by first reviewing item three, which goes through prior litigation, current litigation against the franchise war, and any of the executives.

Before you enter into potential marriage with a business partner, which that’s what a franchise agreement is, is generally for 10 years, you better know if they have any skeletons that are somewhat exposed in their closet in the form of ongoing litigation or prior litigation. And that will be disclosed, again, in item three of the franchise disclosure document.

3- Review of Item 4 (Bankruptcy) Item four is gonna go over any prior bankruptcies that the executives, owners, the franchisor themselves have had.

4- Review of Item 6 (Other Fees) Then going on to item six is gonna go through the fees that you’re responsible for paying to the franchisor to basically use their system, the branding throughout the term of the contract.

5- Review of Item 7 (Initial Investment Cost) Item seven goes to the initial investment cost to open up that franchise. And it generally includes three months of working capital. Really important to understand what’s included in those initial costs.

6- Review of Item 19 (Financial Performance Representations) Then item 19, roughly 60% of franchisors in item 19 will disclose financial performance.

Now, they might show just average sales, median sales. They might even show the net income, the profit of the business. This will be in item 19. And it’s really important you read the fine print and understand that if they’re disclosing all franchises that have been operating over a year, or if they’re disclosing all their franchises or just a handful of corporate locations.

7- Review of Item 20 (Total unit count, openings, closures, and transfers) Item 20, I love diving into this section and seeing how many franchises have open, close, transfer rates, which can show churn in the system, franchises that have been acquired recently from the franchisor. And you can also see this on a state-by-state basis. Again, that’s item 20, you’ve gotta check that.

8- “Google Review of Principals / CEO / Leadership members until 3rd Google page – In the search please check “”lawsuit””, “”litigation””, and “”dispute”” along with the relevant name(s) of the executive(s)” And then go on some easy third-party searches. You’ll be surprised what you see on Google searches. Check out 10, 20 of the locations, see what customers are reviewing, see what the average star rating is. Google the whole leadership team, first and last name. Go at least five, six pages into Google to see their prior background and what things you might find in the public domain about the owners, executive team, and that exact franchise. When you’re doing your Google search and review, you might wanna add in a litigation dispute. Again, you’re trying to uncover some red flags here while you might not wanna continue evaluating that franchise.

9- “Google review of franchise name in the news. Litigation, issues, Yelp reviews (average rating, types of reviews) – In the search please check “”lawsuit””, “”litigation””, and “”dispute”” along with the relevant name of the franchise” As, again, part of the franchise business review is reviewing the news released on that franchise. And you can do that through the Google News feature. Just search the name of the business franchise, and you should be able to get some news over the last few years from that franchise brand.

10- Item 21 (Audited Financials) And then item 21 in the franchise disclosure document goes through the audited financials. This is really important to understand the income statement, the balance sheet, what’s the financial stability of the business, and what their projections might indicate for the coming years based on the historic.

You’re gonna wanna look through these financials, or at least have your advisor, your accountant, your corporate attorney review the long-term debt on the franchisor, how their net income or net loss looks for the prior three years, statement of cash flow is very important, also ownership breakdown of the franchisor, and see if they have related entities.

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