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<div id="pastingspan1"><span style="">No one would buy a franchise without performing due diligence and looking into the franchise brand. While looking over the Franchise Disclosure Document and talking to advisors is important, it&#8217;s impetrative to really dig in and do the research required to get a full understanding of the brand and the franchise requirements.</span></div><div id="pastingspan1"><span style=""><br /></span></div><div id="pastingspan1"><span style="">Sean Fitzgerald, Chief Development Strategist at <a href="http://nolimitagency.com/?utm_source=1851franchise.com&utm_medium=article&utm_campaign=10-tips-for-performing-due-diligence-on-a-brand-3041" target="_blank" rel="nofollow" target="_blank"><span class="brand-highlight">No Limit Agency*</span></a>, shares the top 10 things potential franchisees should look at while deciding to invest in a franchise brand. </span></div><div id="pastingspan1"><span style=""><br /></span></div><div id="pastingspan1"><span style=""><strong>1. Read and understand the terms of the franchise agreement. </strong></span></div><div id="pastingspan1"><span style="">&#8220;While this may sound basic, many people don&#8217;t fully read and understand the franchise agreement in its entirety,&#8221; said Fitzgerald. &#8220;Often times, people pass it over to an advisor to look over, but if you want to buy into the franchise you need to understand the full obligations.&#8221;</span></div><div id="pastingspan1"><span style=""><br /></span></div><div id="pastingspan1"><span style="">Fitzgerald also stresses that potential franchisees shouldn&#8217;t be afraid to ask questions about the agreement. Make sure you understand what you&#8217;re getting into as a franchisee. </span></div><div id="pastingspan1"><span style=""><br /></span></div><div id="pastingspan1"><span style=""><strong>2. Seek franchisee validation. </strong></span></div><div id="pastingspan1"><span style="">That means actually speaking with the brand&#8217;s franchisees. According to Fitzgerald, this is one of the most important things someone should do. Fitzgerald also suggests asking probing questions. Don&#8217;t ask how much you can make, try to ask about specific financial performance numbers they are experiencing, and what it takes to be successful in the system. </span></div><div id="pastingspan1"><span style=""><br /></span></div><div id="pastingspan1"><span style=""><strong>3. Seek business or legal advice. </strong></span></div><div id="pastingspan1"><span style="">When contemplating buying into a franchise system, don&#8217;t go to any old attorney. Make sure to seek out a franchise business advisor or a franchise attorney for help. Franchise professionals are experts in the industry and know the ins and outs of franchise agreements. Don&#8217;t risk wasting time or money with someone who doesn&#8217;t understand the franchise requirements. </span></div><div id="pastingspan1"><span style=""><br /></span></div><div id="pastingspan1"><span style=""><strong>4.  Understand the unit economics of the business. </strong></span></div><div id="pastingspan1"><span style="">This would be in Item 19 of the Franchise Disclosure Document. </span></div><div id="pastingspan1"><span style=""><br /></span></div><div id="pastingspan1"><span style="">&#8220;It&#8217;s important to review and understand the unit economics of the franchise. Make sure to review the full Profits and Losses Statement,&#8221; said Fitzgerald. &#8220;If the P&amp;L is not provided in Item 19, make sure to get it from a franchisee you speak to.&#8221;</span></div><div id="pastingspan1"><span style=""><br /></span></div><div id="pastingspan1"><span style=""><strong>5. Know the actual costs of initial investments, from opening to break even. </strong></span></div><div id="pastingspan1"><span style="">Item 7 of the FDD is the start up costs of a franchise, but it&#8217;s only limited to the first three months of working capital. If it takes longer to break even, start up costs could be much higher. </span></div><div id="pastingspan1"><span style=""><br /></span></div><div id="pastingspan1"><span style=""><strong>6. Pay attention to Item 6.</strong></span></div><div id="pastingspan1"><span style="">Item 6 in the FDD is where you can find fees associated with the franchise system. However, this may include more than just the royalties. </span></div><div id="pastingspan1"><span style=""><br /></span></div><div id="pastingspan1"><span style="">Fitzgerald urges potential franchisees to understand what the ongoing costs are above and beyond royalties. This may include the marketing fund, technology fees, and other additional costs. </span></div><div id="pastingspan1"><span style=""><br /></span></div><div id="pastingspan1"><span style=""><strong>7. Thoroughly review item 20.</strong></span></div><div id="pastingspan1"><span style="">It&#8217;s important to see growth, and Item 20 is where you will find it. Item 20 is a growth chart of the brand over the last three years. </span></div><div id="pastingspan1"><span style=""><br /></span></div><div id="pastingspan1"><span style="">&#8220;A healthy brand should see sustained growth,&#8221; said Fitzgerald. &#8220;If a brand is decreasing in numbers, you will want to understand why. However, that doesn&#8217;t mean it&#8217;s not a strong brand, but you will need to understand why.&#8221; </span></div><div id="pastingspan1"><span style=""><br /></span></div><div id="pastingspan1"><span style="">If a brand is not growing, it should be a concern. Make sure to get to the bottom of it, so you can make an informed decision before signing on the dotted line. </span></div><div id="pastingspan1"><span style=""><br /></span></div><div id="pastingspan1"><span style=""><strong>8. Talk to the executives or the franchisor. </strong></span></div><div id="pastingspan1"><span style="">If possible, get to understand what their vision of the company is and understand their business philosophy. Try to find out where the brand and industry is going and how they plan on staying relevant. This will give you the direction of the path of the organization is heading in and if you have confidence in the leadership of the organization.</span></div><div id="pastingspan1"><span style=""><br /></span></div><div id="pastingspan1"><span style=""><strong>9. Dig into the company&#8217;s audited financial statements. </strong></span></div><div id="pastingspan1"><span style="">You want to look for a brand that has the capital to continue supporting the franchise system. Fitzgerald also suggests reading the footnotes of the audited financial statement.  That&#8217;s where you will get insight on how the numbers are derived from the audit.</span></div><div id="pastingspan1"><span style=""><br /></span></div><div id="pastingspan1"><span style=""><strong>10. Look at the lawsuits in Item 3.</strong></span></div><div id="pastingspan1"><span style="">Understand and ask questions if there is any litigation listed in Item 3 of the FDD. Fitzgerald notes that it&#8217;s not necessarily a red flag if this occurs. The longer a franchise has been around and the larger it is, there may be legal issues that have been brought up. Make sure to ask questions and understand what stemmed from the litigation. Always keep an eye out for any telling signs.</span></div>

1851 Franchise

No Limit Agency Chief Development Strategist Sean Fitzgerald shares some thoughts about doing research on franchises.

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