1851

For many, purchasing a franchise will be the most significant investment they’ll ever make, and no one should ever buy a franchise without performing the proper due diligence. Whether it be looking over the <a href="https://1851franchise.com/the-franchise-disclosure-document-what-items-are-most-important-2709318">Franchise Disclosure Document</a> or talking to advisors, it’s imperative to really dig in and do the research required to get a full understanding of the brand and the franchise requirements.Here are 10 tips for performing franchise brand due diligence before signing on the dotted line.<h4>Really Read the Franchise Agreement</h4>While this may sound basic, many people don’t <a href="https://1851franchise.com/10-must-ask-questions-about-franchise-agreements-2708306">fully read and understand the franchise agreement in its entirety</a>. Oftentimes, 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. Potential franchisees shouldn’t be afraid to ask questions about the agreement. Make sure you understand what you’re getting into as a franchisee.<h4>Seek Franchisee Validation</h4><a href="https://1851franchise.com/what-is-the-value-of-franchisee-validation-in-the-franchise-sales-process-2703208">It’s important to speak to a whole bevy of individuals when doing your homework.</a> Franchises might have a list of recommended franchisees to speak to, but break out of the habit of only contacting these individuals. Moreover, consider speaking to those who have left the system to get their perspective and experience with the brand. A good rule of thumb is to call 10 to 15 franchisees.<h4>Seek the Advice of Experts&nbsp;&nbsp;</h4>When contemplating buying into a franchise system, don’t go to any old attorney. <a href="https://1851franchise.com/2020s-top-franchise-legal-players-2713623">Make sure to seek out a franchise business advisor or a franchise attorney for help</a>. Franchise professionals are experts in the industry and know the ins and outs of franchise agreements. Don’t risk wasting time or money with someone who doesn’t understand the franchise requirements. Allowing an industry professional to review your documentation and research will afford a much-needed perspective and will hopefully yield some insight. Encourage experts to play devil’s advocate and help you examine the franchise from every objective vantage point.<h4>Understand the Unit-Level Economics&nbsp;</h4><a href="https://1851franchise.com/how-to-read-an-item-19-3200">This would be in Item 19 of the Franchise Disclosure Document.</a> It’s important to review and understand the unit economics of the franchise. Make sure to review the full Profits and Losses Statement. If the P&amp;L is not provided in Item 19, make sure to get it from one of the franchisees you speak to.<h4>Find the Actual Costs of Initial Investments</h4><a href="https://1851franchise.com/the-most-important-items-in-an-fdd-item-7-initial-costs-2712071">Item 7 of the FDD lists the startup costs of a franchise</a>, but it’s only limited to the first three months of working capital. If it takes longer to break even, startup costs could be much higher. Make sure to really dig into the costs that will be associated with joining the brand.<h4>Learn Your Liability&nbsp;</h4>Many franchisees do not realize that they are subject to what’s called “vicarious liability,” which is taken on by a franchisor due to the acts of a franchisee. Reviewing the circumstances and frequency against your franchisor will provide you with a crucial impression of what’s to come in this business relationship. Assessing your personal financial liability and resources is also an integral part of the due diligence process.&nbsp;<h4>Analyze Growth Possibilities&nbsp;</h4><a href="https://1851franchise.com/the-most-important-items-in-an-fdd-item-20---outlet-transfer-and-franchise-owner-information-2712074">It’s important to see data relating to franchise growth, and Item 20 is where you will find it</a>. Item 20 is a growth chart of the brand over the last three years. 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, and discuss your growth plan with established franchisees to gauge the scalability of the business.<h4>Talk to the Leadership Team</h4><a href="https://1851franchise.com/the-importance-of-a-strong-leadership-team-972">If possible, get to understand what the leadership team’s vision of the company and business philosophy</a>. Whether it is during a discovery day or separate phone call, try to find out where the brand and industry are going and how they plan on staying relevant. This will give you a sense of what direction the organization is heading in and whether you have confidence in the leadership of the organization.<h4>Dig Into the Company’s Audited Financial Statements</h4>You want to look for a brand that has the capital to continue supporting the franchise system. Reading the footnotes of the audited financial statement is where you will get insight on how the numbers are derived from the audit.<h4>Look at the Lawsuits</h4><a href="https://1851franchise.com/understanding-item-3-of-the-franchise-disclosure-document-litigation-history-2703061">Understand and ask questions if there is any litigation listed in Item 3 of the FDD</a>. Lawsuits aren’t necessarily a red flag — the longer a franchise has been around and the larger it is, the more likely it is that legal issues have arisen. Make sure to ask questions and understand what stemmed from the litigation. <a href="https://1851franchise.com/top-5-fdd-red-flags-2709502">Always keep an eye out for any concerning signs</a>.

10 Tips for Performing Franchise Due Diligence Tips | 1851 Franchise

1851 Franchise

Once you’ve found a franchise opportunity that you are interested in, it’s time to do your homework.

10 Tips for Performing Franchise Due Diligence 

10-tips-for-performing-franchise-due-diligence

TruBlue Home Service Ally

Why TruBlue is the Ideal Franchise for Multi-Unit Owners: Scalable Growth With a Purpose

why-trublue-is-the-ideal-franchise-for-multi-unit-owners-scalable-growth-with-a-purpose

Onigilly Japanese Kitchen

Koji Kanematsu Turned a 2,000-Year-Old Japanese Staple Into One of the Most Scalable Restaurant Franchise Models

koji-kanematsu-turned-a-2000-year-old-japanese-staple-into-one-of-the-most-scalable-restaurant-franchise-models

Lindora

Celebrating the Nurse Behind the Mission: How Melinda Endricks Is Powering Lindora’s Growth and Impact Nationwide

celebrating-the-nurse-behind-the-mission-how-melinda-endricks-is-powering-lindoras-growth-and-impact-nationwide

Sola Salons

Sola Salons Targets Chicago for Strategic Franchise Growth

sola-salons-targets-chicago-for-strategic-franchise-growth

Melting Pot

Photo of Melting Pot white chocolate fondue

How Melting Pot Franchisees Drive Year-Round Success Through Strategic Promotions and Local Marketing

melting-pot-franchise-year-round-success

Buying a Franchise Masterclass

 Franchise Opportunities

Get Support Buying a Franchise

How to Buy a Franchise White Paper

How to Buy a Franchise

How to Sell Franchises

How to Grow a Franchise

Find a Franchise Supplier

1851 Franchise Opportunities

Franchisor News

Franchisor Power Rankings

FranCamp Mastermind Summit

Franchise Resources

What ALEC-Laffer's Report Means for Franchising

Website Awards

Power Rankings

About 1851

Advertise on 1851

Contact 1851 Editorial

Terms of Use

1851 Login

GROWTH CLUB LOGIN

facebook

instagram

twitter

linkedin

youtube

DoorDash Expansion Could Reshape Delivery and Operations for Franchise Brands - 1851 Franchise

DoorDash Expansion Could Reshape Delivery and Operations for Franchise Brands

doordash-acquistions-deliveroo-sevenrooms

Crumbl Franchise Investment - TSG Consumer Partners -  1851 Franchise

TSG Consumer Partners Takes Minority Stake in Crumbl, Signaling Franchise Growth Potential

crumbl-franchise-investment-tsg-consumer

Yum Brands Reports Strong Q1 Results with Big Boost from Taco Bell

yum-brands-reports-strong-q1-results-with-big-boost-from-taco-bell

QSR: McDonald’s Gains Momentum With Chicken Innovation, Value Deals and Franchisee Support

mcdonalds-franchise-recovery-chicken-strategy-value-deals-2025

The Future of Franchising: Trends and Predictions for 2025 and Beyond

the-future-of-franchising-trends-and-predictions-for-2025-and-beyond

Layoffs Surge to Pandemic-Era Highs, Opening Doors for Franchise Growth

layoffs-surge-to-pandemic-era-highs-opening-doors-for-franchise-growth

District Taco Franchise Costs, Fees, Profit and Data for 2025

franchise-deep-dive-district-tacos-franchise-costs-fees-profit-and-data

Franchisee spotlight image with Randy and Sandy Craft, Children's Lighthouse logo on blue background

The Crafts’ Successful Journey from New Parents to Children’s Lighthouse Franchisees

the-crafts-successful-journey-from-new-parents-to-childrens-lighthouse-franchisees

Franchisee spotlight graphic with photo of Amy Lepke and family and Papa Murphy's logo

After 14 Years as a Stay-At-Home Mom, Amy Lepke Returned to Papa Murphy’s — This Time as an Owner

papa-murphys-franchise-amy-lepke

Franchisee Spotlight with Micki Waters and Papa Murphy's Logo

Work Mom: How Micki Waters Became a Mother Figure to Her Entire Papa Murphy’s Team

work-mom-how-micki-waters-became-a-mother-figure-to-her-entire-papa-murphys-team

Health Care Professional in the Non-Profit Space Brings TruBlue to North Pittsburgh

health-care-professional-in-the-non-profit-space-brings-trublue-to-north-pittsburgh

10 Tips for Performing Franchise Due Diligence

MORE STORIES LIKE THIS