How to Buy a Franchise Business

Once you've narrowed down the list of franchises you are seriously considering, you will begin a very detailed process of assessing each for possible purchase. A good franchisor should have a thorough candidate review process in place; as much as you are investigating them, they should also be interviewing YOU to determine if you have the skills, characteristics, interests, etc. that bode well for success in their model. While each franchisor's process will be slightly different the primary steps are as follows:


  1. Image titled Buy a Franchise Business Step 1
    Participate in an Initial Phone Call/Program Review Call. This call typically lasts one hour and should answer the FAQs that most people have about the industry, business and franchisor. The franchisor should ask you several questions about your financial goals, desired lifestyle, strengths and financial capacity. The purpose of this call is to determine if there is enough evidence of 'fit' to take the next step in the process.
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    Complete A Profile Form. Most franchisors will require you to submit a profile form with your background and financial information prior to sending you their Franchise Disclosure Document (FDD).
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    Review the FDD. The Federal Trade Commission (FTC) requires all franchisors to produce an FDD using a standardized format and covering mandatory content. It is a detailed description of all the rights and obligations associated with the franchise, and includes the franchisor's financial statements as well as a sample Franchise Agreement. It is a large document and can be overwhelming.
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    Have an FDD Review Call. The FDD usually generates more questions on your part and the franchisor should offer to review the FDD in detail with you to ensure you understand all the material.
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    Consult Professional Advisors/Arrange Financing. If your financial capacity is unclear, it may be helpful to take the FDD to an accountant/financial advisor who can analyze the anticipated investment parameters in comparison to your financial position. If you haven't already, you should definitely determine exactly how you will fund the startup of your business (savings, stocks, 401k, home equity, loan, etc.) and seek pre-approval if applicable. Some people choose to take the FDD and/or sample Franchise Agreement to a lawyer. If you do not understand any of the material then you should definitely do so, however, realize that franchisors as a rule never change the terms of their Agreements on a case-by-case basis.
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    Perform Validation Calls With Existing Franchisees. These calls will give you a 'front lines' perspective on what it's like to run the business day-to-day, and on the support provided by the Home Office. Many franchisees are also willing to share their financial information with you, which is extremely helpful because many franchisors cannot give revenue or profit data by law.
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    Attend a Discovery Day at the Corporate Office. You are contemplating on entering a long term business relationship with this franchisor, so it is important that you meet the people behind the logo that will be supporting you. The franchisor is also seeking to affirm that your representations to-date match those you give in person. You shouldn't learn anything new at a Discovery Day necessarily, but rather it should bring together everything you've learned about the business and system of operation thus far. At times, you may be offered the franchise during Discovery Day. You should be made aware that this is how the franchisor operates prior to the trip so that you are prepared. When planning the trip, you can ask what to expect during the visit and the agenda.
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    Award Notice. Usually within 1 week of the Discovery Day, the franchisor will notify you of their desire to formally award you a franchise. Most candidates will inform a franchisor of their purchase decision within the following 2 weeks.
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    Finalize Territory. Some franchisors will have pre-carved territories, some offer different sizes for different prices, some take a collaborative approach, and some do not provide any geographical boundaries to territories at all. Make sure you understand the marketing and servicing provisions of the franchisor's territories, and your exact location and territory size will need agreed upon before Franchise Agreements can be drawn.
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    Sign the Franchise Agreement. The Franchise Agreement is a legally binding document. You are wise to execute it under an entity name, versus executing it as an individual. The Initial Franchise Fee is typically due at the time the Agreement is signed. By law, you must have the FDD of at least 14 days before a franchisor can issue you a Franchise Agreement to sign.


  • Don't let a franchisor rush you through the steps. Everyone goes through the process at their own pace.
  • High investment franchises (i.e. food service, hospitality, retail, etc.) will require proof of financial capacity/funding sources very early on and will likely have a much more complicated process, simply because the stakes are higher.
  • Involve your spouse/partner is all steps of the process, even if he/she won't be involved in the business. It is still an important decision that impacts you both.
    • A competent Franchise Advisor can be of great help throughout the process.


  • Be wary of a franchisor who isn't performing due diligence on YOU. It's a sign that anyone is allowed into the franchise, without genuine consideration of the degree of fit that exists.
  • By law, a franchisor cannot give you any representations regarding revenues, expenses or profits unless the information is disclosed in the FDD Item 19 or is publicly available. Obtaining this information from franchisees is ok and encouraged.

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Categories: Buying & Forming a Business