Franchise Due-Diligence Checklist

Evidence request: Request the complete Franchise Disclosure Document, delivery record, signed receipt page, version date, state cover pages if provided, and a timeline showing at least 14 calendar days before any binding agreement or payment to the franchisor or affiliate.

Escalation or owner cue: Franchise counsel should pause signing or payment if the package was late, materially incomplete, replaced by a later version, or followed by changes that may require additional review.

Evidence request: Ask whether the transaction relies on a Franchise Rule exemption, whether final agreements include unilateral changes from the form documents, and whether any materially changed agreement was delivered at least seven calendar days before signing.

Escalation or owner cue: Counsel should decide whether an exemption or changed-document timing position applies. Do not universalize state waiting periods from this federal checklist.

Evidence request: Confirm the FDD includes the FTC-mandated cover page, table of contents, Items 1 through 23, audited financial statements, contracts, receipts, exhibits, attachments, and any state-specific addenda the franchisor supplied.

Escalation or owner cue: Escalate missing exhibits, unsigned receipts, stale financials, omitted contracts, or oral instructions to ignore part of the FDD.

Evidence request: Request the Item 1 narrative, ownership chart, parent and affiliate roles, predecessor history, operating-history support, and any separate supplier or real-estate affiliate contracts.

Escalation or owner cue: Counsel and CPA should flag thin operating history, opaque affiliates, related-party vendor economics, or a parent that does not guarantee performance.

Evidence request: Review the disclosed directors, officers, and managers, their tenure, franchise-system experience, bankrupt or disputed prior concepts, and gaps between disclosed roles and sales-team claims.

Escalation or owner cue: Escalate leadership turnover, limited system experience, or undisclosed executives presented as decision makers during recruitment.

Evidence request: Request the Item 3 litigation disclosures, Item 4 bankruptcy disclosures, docket references, settlement obligations, enforcement actions, and explanations of disputes involving franchisees, suppliers, earnings claims, or system operations.

Escalation or owner cue: Franchise counsel should assess whether litigation patterns, bankruptcy history, or agency actions affect contract risk, financing, transfer consent, or trust in disclosed performance information.

Evidence request: Request a line-item schedule tying the initial franchise fee, training fees, technology fees, royalties, advertising fund charges, renewal fees, transfer fees, audit costs, late charges, local marketing spend, and other recurring payments to the FDD.

Escalation or owner cue: CPA and counsel should flag fee definitions that affect break-even revenue, cash runway, lender projections, or post-close distributions.

Evidence request: Build a sources-and-uses schedule from Item 7 covering buildout, equipment, signs, inventory, grand-opening spend, professional fees, deposits, insurance, training travel, pre-opening payroll, and working capital through the disclosed initial period.

Escalation or owner cue: Escalate if Item 7 reserves end before realistic opening or ramp-up, if landlord allowances are uncertain, or if ROBS proceeds would leave the company undercapitalized.

Evidence request: Request supplier lists, required purchases, approved-vendor approval process, rebates, affiliate supplier economics, inventory requirements, technology mandates, and any source restrictions that affect margins or substitution rights.

Escalation or owner cue: Counsel and operations advisors should review exclusivity, rebate conflicts, non-transferable software, and supplier failures that could impair unit economics.

Evidence request: Map Item 9 franchisee obligations and Item 10 franchisor financing terms to the closing checklist, lender conditions, collateral, guarantees, standby requirements, and any franchisor-affiliate credit terms.

Escalation or owner cue: Lender, CPA, and franchise counsel should resolve financing promises, personal guarantees, SBA addenda, collateral conflicts, and obligations that survive termination.

Evidence request: Request manuals access summary, training agenda, opening support plan, advertising fund rules, required software, data access terms, point-of-sale requirements, field-support cadence, and technology fee detail.

Escalation or owner cue: Escalate vague support, discretionary advertising spend, weak training for first-time owners, data ownership limits, or systems that create employee-benefit-plan cybersecurity exposure.

Evidence request: Request the territory map, protected area terms, reservation of rights, online sales rules, alternative channel rights, encroachment examples, relocation provisions, and expansion or multi-unit conditions.

Escalation or owner cue: Counsel and the buyer should decide whether territory rights support the revenue model or allow competition that changes investment risk.

Evidence request: Request trademark registration details, known challenges, required marks, domain and social rules, patent or copyright licenses, confidentiality duties, and system-change rights.

Escalation or owner cue: IP counsel should review weak marks, pending disputes, rebranding duties, non-transferable rights, and costs if the franchisor loses or changes required IP.

Evidence request: Document required owner involvement, manager qualifications, training attendance, minimum hours, multi-unit supervision, absentee ownership limits, and conflicts with outside employment.

Escalation or owner cue: ROBS and franchise advisors should align owner-employment assumptions, reasonable compensation planning, plan participation, and franchisor operating requirements.

Evidence request: Request the approved products and services list, pricing control provisions, menu or service-change rights, sales-channel limits, customer ownership terms, and mandatory promotion requirements.

Escalation or owner cue: Escalate restrictions that make local economics unrealistic, limit revenue diversification, or conflict with lender projections.

Evidence request: Prepare a plain-English matrix of term length, renewal conditions, fees, remodel obligations, default cure rights, termination triggers, transfer approval, purchase options, noncompetes, venue, arbitration, jury waivers, and class-action waivers.

Escalation or owner cue: Franchise counsel should explain how exit, sale, death, disability, default, or business failure would work before the buyer commits retirement-plan-funded capital.

Evidence request: Request details for any public figure involvement, compensation, ownership, endorsement scope, operational role, and termination of endorsement rights.

Escalation or owner cue: Treat celebrity or influencer involvement as marketing context only. Escalate if sales pressure substitutes fame for unit economics or franchisor obligations.

Evidence request: If the franchisor makes a financial performance representation, request the exact Item 19 text, substantiation, sample size, exclusions, time period, ownership mix, maturity of units, and written support for every earnings, revenue, margin, or cost claim.

Escalation or owner cue: Counsel and CPA should flag oral or slide-deck earnings claims outside the FDD, selective averages, missing expense categories, or claims that do not match the buyer's site and financing model.

Evidence request: Review outlet tables for openings, closures, terminations, non-renewals, reacquisitions, transfers, projected openings, affiliate-owned units, and churn by geography and vintage.

Escalation or owner cue: Escalate high turnover, stalled development, many transfers, franchisor reacquisitions, or growth claims that do not match actual system history.

Evidence request: Call a representative mix of current and former franchisees from the FDD lists and ask about opening cost variance, ramp time, support, marketing, labor, supplier pricing, working capital, disputes, renewal, transfer, and whether results matched Item 19 assumptions.

Escalation or owner cue: Ask counsel how to document validation without collecting private customer or employee data. Escalate patterns that contradict the FDD or sales process.

Evidence request: Request the franchisor's audited financial statements, auditor opinion, notes, going-concern language, related-party balances, debt maturity, cash position, and any more recent interim financials voluntarily supplied.

Escalation or owner cue: CPA should assess franchisor financial capacity to provide support, honor obligations, maintain systems, and survive downturns. Do not treat audits as investment approval.

Evidence request: Compare every contract listed in Item 22 with the actual franchise agreement, personal guarantee, lease rider, software agreement, development agreement, supplier documents, financing papers, addenda, releases, and receipts to be signed.

Escalation or owner cue: Franchise counsel should own the redline, required addenda, SBA Form 2462 if applicable, guaranty exposure, and inconsistencies between the FDD and final documents.

Evidence request: Keep the dated FDD receipt, delivery proof, version identifier, signed receipt pages, and records showing no binding agreement or payment occurred before the federal waiting period was satisfied unless a valid exemption applies.

Escalation or owner cue: Counsel should preserve timing evidence in the closing file because a personal workflow status cannot cure a disclosure-timing defect.

Evidence request: Build a unit model using local rent, wages, staffing, royalties, ad fund charges, local marketing, cost of goods, repairs, insurance, technology fees, debt service, owner salary, and working-capital reserves.

Escalation or owner cue: CPA and lender should test break-even, DSCR, ramp delay, seasonality, and downside cases before retirement assets become concentrated in employer stock.

Evidence request: Request site approval criteria, lease draft, landlord consent, tenant improvement scope, permits, zoning, signage rules, construction budget, contractor bids, opening timeline, and contingency reserve.

Escalation or owner cue: Real-estate counsel, contractor, lender, and franchisor should resolve assignment rights, personal guarantees, delays, rent escalations, exclusivity, and buildout overruns.

Evidence request: Maintain a closing checklist for franchise approval, entity formation, plan stock purchase, valuation, lender conditions, insurance, permits, lease, receipts, final agreements, funds flow, and post-opening administration.

Escalation or owner cue: Escalate any unresolved issue that affects signing, payment, funding, plan operations, employee access, valuation support, or opening permission.

Evidence request: If SBA-backed debt is planned, request the lender's franchise eligibility review, SBA Franchise Directory status, required addendum, credit memo conditions, collateral list, equity injection support, standby seller note terms, and change-of-ownership requirements.

Escalation or owner cue: Lender and counsel should resolve whether the brand, agreement, addenda, and ownership structure satisfy current SBA policy. Directory listing is not brand approval or success assurance.

Evidence request: Request franchisor approval letters, background-check requirements, liquidity and net-worth standards, training prerequisites, site approval, transfer requirements for resale units, and opening milestones.

Escalation or owner cue: Escalate conditions that could delay funding, require more cash, conflict with SBA or ROBS timing, or make the purchase agreement deadlines unrealistic.

Evidence request: Request C corporation formation documents, qualified plan adoption records, trust account evidence, rollover timing, stock subscription agreement, board approvals, stock ledger, corporate receipt of proceeds, and a funds-flow statement showing corporate use of proceeds.

Escalation or owner cue: ROBS provider and ERISA counsel should verify that retirement-plan assets buy employer stock and the corporation, not the owner personally, pays approved business costs.

Evidence request: Request valuation scope, assumptions, capitalization table, franchise opening budget, Item 7 support, lender package, and any transaction-level valuation analysis connecting the corporation's stock value to the franchise investment.

Escalation or owner cue: A fiduciary or valuation professional should address fair-market-value support, conflicts of interest, and later valuation updates. A cleared checklist status is not a valuation opinion.

Evidence request: Document expected hire dates, eligibility rules, participant notices, payroll provider setup, recordkeeper access, employer-stock availability, nondiscrimination testing, Form 5500 ownership, and cybersecurity controls for plan data.

Escalation or owner cue: ERISA counsel or the plan administrator should resolve employee access, amendments, testing, disclosures, annual filings, and service-provider monitoring before the first eligibility deadline.

Evidence request: Request related-party leases, family employment, owner compensation, personal guarantees, expense reimbursement policy, supplier relationships, franchisor incentives, and any transactions between the owner, plan, corporation, family members, and affiliates.

Escalation or owner cue: ERISA counsel should review prohibited-transaction, fiduciary, exclusive-benefit, and plan-document issues before money moves or side agreements are signed.