Franchise Purchase Due Diligence, Part 2

Business_Finance_14004In item 20 of the FDD, closely examine the so called franchisee churn rate–the number of company owned and franchisee units that have opened, closed, or transfered over the last several years, versus the total company unit size.

Too many closures or transfers is bad–its a sign of stress and turmoil. Generally, franchise owners do not sell their business if cash flowing or times are good. A rough rule of thumb is examine closely3% or higher churn rates.

Keep in mind that there is a very loose patchwork of federal laws governing disclosure and contracts in general, but don’t look for the federal government to be your protector.  And many states have no franchise regulation at all.

In our next installment, we’ll get into this in greater detail, and what’s most important economically about your potential franchise business.

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

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