Prospective Franchisee Due Diligence Part 4

September 5, 2013, 8:28 PM

This post, and the posts that preceded it (Part 1, Part 2 and Part 3) outline the due diligence that we recommend for prospective franchisees.

Franchisors must disclose the name, address and telephone number of all current franchisees and those who have been terminated, cancelled or not renewed, or ceased doing business with the franchisor, during the past year, most typically in an exhibit to the franchise disclosure document (or in Item 20). In my opinion, existing franchisees candid assessment of their franchise system is the single best indicator of a prospective franchisees likely happiness and success as a new franchisee within that franchise system. If most or all of the franchisees you contact are ecstatically happy with the franchisor and their franchise relationship, you are likely to be too. If they are lukewarm or unhappy about their relationship with their franchisor, you are likely to end up in the same condition. Contact a broad cross-section of the franchisors existing franchisees, and respectfully inquire regarding their experience with the franchise system. Possible questions to ask existing franchisees can be found in the folllowing reports (see New Yorkand Illinois Attorney General reports).

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