Franchise Purchase Due Diligence, Part 1

Business ProfessionalsOne of the most important parts of buying into a franchise is doing the work beforehand, before you service customer number one. That is, doing the due diligence or pre-purchase investigation.

Aside from devoting your time and investment into a franchise business, some good due diligence work is necessary. Why? Because once you sign the franchise agreement and pony up your money, your life will change in many ways.

Some of the information you’ll need comes from the so called Franchise Disclosure Document (FDD). In the past, it was known as the UFOC.

The FDD discloses your rights and responsibilities, and gives overview information about the franchise business. It DOES NOT give you all the information you need. For example, “earnings claims”–item 19–are not truly earnings claims, but generally just a listing of the top line gross sales that might be an average for the system.

Gross sales DOES NOT equal profit !

You do need to call current (and prior franhcisees) if you can find them. But expect only so much information. Often, they only have so much information and perspective. You must do more investigation.

About John Gordon

John A. Gordon is a restaurant sector expert, who focuses on restaurant management, operations, and related earnings and economics matters. He consults with attorneys and other professionals who need to know about restaurants, via expert research, expert consultant and expert witness roles. Working for both plaintiffs and defendants, he has experience with both state and federal actions. He is an expert on chain restaurant business conditions and publicly traded companies. Gordon has extensive, career-long executive restaurant operations, corporate staff, financial management and management consulting experience, and is familiar with virtually all management issues and business disciplines. He has completed PSLRA securities, financial projections, due diligence reviews, earnings and damages, franchisee/franchisor matters, wage and hour and menu analysis expert work. Expert witness and article contributor for www.ForensisGroup.com

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