The fine print
Now, they might show just average sales, median sales. They might even show the net income, the profit of the business. This will be in item 19. And it’s really important you read the fine print and understand that if they’re disclosing all franchises that have been operating over a year, or if they’re disclosing all their franchises or just a handful of corporate locations.
☑ Review of Item 20 (Total unit count, openings, closures, and transfers)
Item 20, I love diving into this section and seeing how many franchises have open, close, transfer rates, which can show churn in the system, the franchisor that recently acquired franchises. And you can also see this on a state-by-state basis. Again, that’s item 20, you’ve gotta check that.
☑ “Google Review of Principals / CEO / Leadership members until 3rd Google page – In the search please check “”lawsuit””, “”litigation””, and “”dispute”” along with the relevant name(s) of the executive(s)”
And then go on some easy third-party searches. You’ll be surprised what you see on Google searches. Check out 10, 20 of the locations, see what customers are reviewing, see what the average star rating is.
Google the whole leadership team, first and last name. Go at least five, six pages into Google to see their prior background and what things you might find in the public domain about the owners, executive team, and that exact franchise.

Google search
When you’re doing your Google search and review, you might wanna add in a litigation dispute. Again, you’re trying to uncover some red flags here while you might not wanna continue evaluating that franchise.
☑ “Google review of franchise name in the news. Litigation, issues, Yelp reviews (average rating, types of reviews) – In the search please check “”lawsuit””, “”litigation””, and “”dispute”” along with the relevant name of the franchise”
As, again, part of the franchise business review is reviewing the news released on that franchise. And you can do that through the Google News feature. Just search the name of the business franchise, and you should be able to get some news over the last few years from that franchise brand.
☑ Item 21 (Audited Financials)
And then item 21 in the franchise disclosure document goes through the audited financials. This is really important to understand the income statement, the balance sheet, what’s the financial stability of the business, and what their projections might indicate for the coming years based on the historic.
You’re gonna wanna look through these financials, or at least have your advisor, your accountant, your corporate attorney review the long-term debt on the franchisor, how their net income or net loss looks for the prior three years, statement of cash flow is very important, also ownership breakdown of the franchisor, and see if they have related entities. Sometimes franchisors like to be clever and receive kickbacks or related entities, and this all should be legally disclosed in the franchise disclosure document.
Enhanced Review Checklist
☑ Latest current year and full prior year Income Statement (up to 3 years if possible)
☑ FY balance sheet of parent company for prior year (up to 3 years if possible)
☑ Long-term debt for the parent company – any debt besides credit cards?
☑ Statement of Cash Flows (only obtain if franchise)
☑ “Ownership % breakdown of parent company. Ask – do you expect any changes to this within the next 1-2 years?”
☑ Individual unit income statements & balance statements
☑ Tax return for prior year
☑ “Google Review of Principals / CEO / Leadership members until 3rd Google page – In the search please check “”lawsuit””, “”litigation””, and “”dispute”” along with the relevant name(s) of the executive(s)”
☑ “Google review of brand name in the news. Litigation, issues, Yelp reviews (average rating, types of reviews) – In the search please check “”lawsuit””, “”litigation””, and “”dispute”” along with the relevant name of the business”
☑ 5-year Pro-forma P&L for the proposed unit model
☑ Proposed employee organization chart for an individual unit
☑ Ask – do any of the executives or business has any settled, upcoming, or pending litigation we should be made aware of?
Conclusion
As part of this franchise business review, it’s really to see if there are red flags or yellow flags. So you should ask further questions, put it on hold, get your attorney, get your accountant more involved.
And if they pass through this checklist with flying colors, you still have some other things to consider
Part of that is asking questions… And part of the things that you should consider next is to get to book those conversations with actual franchisees.