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What due diligence do I need to undertake when purchasing a franchise resale?
You need to research two specific areas of your prospective investment - past performance and previous accounts. Why is the franchised business being offered for sale? The reasons given cannot be taken at face value and must be verified through the previous trading history of the business. A prospective purchaser should review at least the previous three years of accounts. Previous performance statistics can help create a picture of the health of the business and also can be used to forecast future performance. Other questions to ask include whether you would be assigned the existing franchise agreement or signing a new one directly with the franchisor. If you will be assigned the existing franchise agreement, how much time is left on it? Are the terms of the existing agreement acceptable to you? If you will be signing a new franchise agreement, how will it have changed from the agreement that the current owner signed? Also, speak with as many current and previous franchisees of the system as possible. Why did the previous franchisees leave? Have any of the franchisees had difficulties with the franchisor? How have those issues been resolved?
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