Thinking of buying a franchise? It can be an attractive investment opportunity. But the decision should come only after rigorous due diligence and evaluation. Superficial checks are not enough; you need a deep assessment to ensure the opportunity aligns with your goals and expectations.
This checklist will help you investigate thoroughly and choose the right franchise.
1) initial franchise cost
What is the upfront franchise fee?
What are the estimated costs for real estate, construction, equipment, inventory, and working capital for the first 6–12 months?
Can the franchisor provide financial performance records of existing units?
When can you realistically expect to break even and start making profits?
How long does it typically take to set up a new unit?
2) Ongoing fees (royalty and advertising)
How is royalty calculated—percentage of gross sales or a fixed fee?
How is the advertising contribution structured?
Are financial statements of the advertising fund available?
What portion of the fund is used for administrative expenses?
3) Role, skills and fit
What are the day-to-day responsibilities of a franchisee?
What experience and skills are most useful for success?
Do you want to be an owner-operator or an absentee owner?
What support does the franchisor provide for each model?
What is the duration of the franchise agreement, and does it match your long-term goals?
4) Initial and ongoing support
What does the initial training cover—operations, marketing, management?
What ongoing support is provided (field support, online systems, conferences, manuals)?
What assistance is offered for site selection and lease agreements?
How does the franchisor support marketing strategy and quality control?
5) Brand strength and market demand
What is the brand’s current recognition and reputation?
What is the size and growth rate of the industry?
Who are the key competitors (local, national, international)?
What is the brand’s competitive edge?
Is there a strong customer base in your target location?
6) Disclosure document and legal aspects
Can you review the Franchise Disclosure Document (FDD)?
Are there any past legal cases involving the franchisor?
Has the franchisor or its executives faced bankruptcy?
What are the exact obligations of both franchisor and franchisee under the FDD?
Always consult an experienced franchise lawyer before signing.
7) Feedback from current and former franchisees
Can you get a list of current franchisees to contact?
Can you access details of former franchisees who exited the business?
Ask current franchisees: Are you satisfied with training, launch support, and transparency?
Ask former franchisees: Why did you exit? What were your key challenges?
8) Territory, renewal and termination
Is the territory exclusive, protected, or non-exclusive?
Under what conditions can territory change or new units open nearby?
What are the terms for renewal?
What are the termination conditions and penalties?
Are there restrictions on selling or transferring the franchise?
9) due diligence and expert consultation
On what assumptions are financial projections based? (Consult your accountant.)
What are the key financial risks and how can they be mitigated? (Consult your banker.)
Which legal clauses require special attention? (Consult your lawyer.)
Are there specific regulatory requirements for this sector?
10) Callenges and resilience
How will the business perform during economic downturns?
Are there seasonal or regional demand fluctuations?
What challenges could arise over the next 5–10 years?
Understanding an opportunity in its entirety is essential for making the right investment decision. Study franchise offers in depth, conduct thorough due diligence, and ensure your investment is placed in the right opportunity.
(Dr Chackochen Mathai is the founder and CEO of Franchising Right Way; he is also a well-known franchise coach and the author of the book `Franchising Right Way.')
Dr Chackochen Mathai
