Prospective Franchisee Due Diligence Part 2

June 6, 2013, 10:18 AM

This post, the post that preceded it, and the ones that will follow it, will outline the due diligence that we recommend for prospective franchisees. For the prior blog post on this topic, click here.

A prospective franchise should conduct due diligence on the internet regarding the chosen franchisor. The franchisee should conduct a Google search on the franchisor entity, and should examine multiple pages of Google search results to attempt to get past sites promoting the sale of the franchise to any independent and objective articles, or possibly complaints about the franchisor. The prospective franchisee should also do a specific Google search with the franchisors name and (separately, for each of the following items) lawsuit, judgments, earnings, financial and competitors.

In addition, the prospective franchisee should conduct a Google search on all of the individuals identified in Item 2 of the Franchise Disclosure Document, to see if any additional information is available on any of their backgrounds.

Issues worthy of further inquiry include litigation brought against the franchisor (Item3) and bankruptcy by the franchisor or any of its principals (Item 4) and, in particular, undisclosed (in the Franchise Disclosure Document) litigation, undisclosed orders from state franchise regulators, or undisclosed bankruptcies.

Finally, the prospective franchisee should visit sites aggregating complaints about franchisors. Two sites I regularly visit are www.bluemaumau.org and www.unhappyfranchisee.com.

For further information regarding this topic, please contact Stephen E. Story at 757/624-3257 or sestory@kaufcan.com. --Stephen E. Story