We're looking to acquire a franchised business. Any tips or due diligence processes that may vary from acquiring a non-franchised business?
The due diligence is the same for any other comparable business; however, the following are some franchise-specific issues:
You will want to thoroughly review the franchise agreement, and you should also have it reviewed by a good commercial lawyer who specializes in franchises.
Before signing a franchising contract, you should be able to answer the following questions:
- Does the franchisee have an exclusive territory?
- Is the franchise transferable? How long is left on the existing franchise agreement?
- Is the franchise renewable? For how long?
- Is it renewable at the franchisor's or the franchisee's option?
- What am I getting for the franchise fee? Accounting systems? Operating systems? Lower prices on supplies?
- What exactly am I buying? Am I buying the right to use the name? Is the building part of the deal, and if so do I own the real estate? Will I be paying rent?
Confirm that the current franchisee is in good standing with the franchisor, and talk to other franchisees within the group to ensure that there are no hidden issues with the franchisor.
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