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| Name | Description |
| General business considerations | How well do you rate the general business considerations surrounding the purchase of the business? (Consider location, years in business, growth potential, reasons for selling and due diligence results.) |
| Growth potential | What are the growth avenues for this business? (Consider geographic, web-based, physical plant, new products, etc.) |
| Business location – general | Is location, in general, critical to the success of this type of business? |
| Due diligence | How available are key documents for a thorough due diligence process on the business? (Detailed review and verification of financial records, contracts, major clients, regulatory compliance, etc.) |
| Due diligence results | How good are the due diligence results for the business you are looking to buy? |
| Reasons for selling | How solid are the franchiser reasons for business expansion? |
| Franchiser business reputation | What is the current reputation of the franchiser with its customers, suppliers, employees, shareholders, etc.? |
| Business reputation | What is the local reputation of other area franchises, if any, with their customers, suppliers, employees, community, etc.? |
| Business location – local | How good is the proposed business location for successful operations? (In-town, suburbs, industrial, rural, etc.) |
| Years in business – franchiser | How do the franchiser’s years in business add to the probability of success? |
| Personal considerations | How well does the purchase of the business fit your personal considerations, such as knowledge of the business type, industry knowledge, skills and interests, reasons to buy and entrepreneurial fit? |
| Knowledge of business type | How well do you know the general type of business you are considering, i.e., manufacturing, wholesale, retail, etc.? |
| Industry knowledge | Evaluate your overall industry knowledge, including contacts with suppliers and customers. |
| Skills and interests | How well do your skills and interests fit the business? |
| Commute time | How acceptable is the commute time to the place of business? |
| Reasons to buy | What are your reasons for buying the business? |
| Entrepreneurial fit | How well does the business model fit your entrepreneurial personality? |
| Market considerations | How do you rate the company’s overall market situation, including market size, position, expansion, etc.? |
| Market position – franchiser | How do you rate the franchiser’s position in its total market? (Consider innovation, advertising, image, etc.) |
| Market size – franchiser | How do you rate the size of the franchiser’s total market? (Local, regional, national, international) |
| Market expansion – overall franchiser | How well is the overall market expanding for the franchiser’s products and services? |
| Market expansion – local franchise | How well is the local market expanding for the franchise’s products and services? |
| Market position – franchise | How do you rate the basis of the proposed market position for the new franchise? |
| Market size – franchisee | How do you rate the size of the proposed franchise’s market? (Local, regional, national, international) |
| Financial considerations | How do you rate the overall financial aspects of the purchase, including purchase aspects, financial information, asset and liability considerations, discretionary earnings and financial ratios? |
| Purchase overview | How do you rate the overall purchase considerations, including price, down payment, options, capacity, reserves, etc., for the business? |
| Purchase price | How reasonable is the proposed purchase price? |
| Down-payment | How reasonable is the down payment required keeping in mind it could change the quick and current ratios of the business? |
| Purchase capacity | How financially capable are you to purchase the business? |
| Cash reserves | What is your ready access to cash if operating cash flow does not support the business? |
| Seller’s options | What seller purchase options are available? |
| Financial information | How well does the overall financial information available support the purchase of the business? (Consider accuracy, timeliness, outlook, business value, discretionary earnings, tax benefits, etc.) |
| Trust in financial information | What is your trust level in the financial data provided? |
| Timeliness of financial information | How do you rate the frequency operating financial data is generated? |
| Financial outlook | How do you rate the financial outlook for the business, including revenue sustainability, cash flow, assets, liabilities, and performance projections? |
| Gross (not Net) profits | Are the projected gross profits for this business type within norms? |
| Net (not Gross) profits | Are the projected net profits for this business type inline with norms? |
| Cash flow | How reasonable is the projected cash flow needed for the business to operate? (Review avg. A/R, avg. A/P, avg. OH, inventory levels, etc.) |
| Gross revenue | Are the gross revenues (actual or projected) of the franchise acceptable for the proposed purchase price? |
| Performance projections | How realistic are the performance projections for the next 3 years? |
| Asset base | How viable is the overall asset base transferred in the purchase? (Consider land/property, building(s), furniture/fixtures/equipment, inventory, goodwill, etc.) |
| Liability exposure | What is your overall exposure to any liabilities assumed in the purchase? (Consider excess mortgages, over-leveraged purchases, etc.) |
| Value considerations | How well do the various value determinations (book value, appraisals, fair market value, etc.) support the asking price? |
| Goodwill | How well does the projected business cash flow and general attractiveness of the business support the goodwill amount included in the license price? |
| Purchase price valuation | How reasonable is the assumed franchise valuation? |
| Discretionary earnings | How well do the projected post-purchase discretionary earnings of the franchise support owner compensation, equipment investment, note payments, and taxes? (Profits before income tax, depreciation, interest, owners benefits and compensation) |
| Tax benefits | Do you have any tax benefits available through the purchase of the franchise? |
| Ratios | How good do the quick and current ratios look both pre and post purchase? |
| Quick ratio pre-purchase | Evaluate the quick ratio (cash + equivalents / liabilities) prior to purchase. (Banks prefer 1.00 – 1.25 or better) |
| Quick ratio post-purchase | Evaluate the quick ratio (cash + equivalents / liabilities) after the purchase. (Banks prefer 1.00 – 1.25 or better) |
| Current ratio pre-purchase | Evaluate the current ratio (current assets / current liabilities) prior to purchase. (Banks prefer 2.0 or better) |
| Current ratio post-purchase | Evaluate the current ratio (current assets / current liabilities) after the purchase. (Banks prefer 2.0 or better) |
| Operational considerations | How well do the overall operational considerations, such as facilities, staff, support, advertising, operational improvements, etc., support the purchase of the business? |
| General operational aspects | How well do the general operational aspects support the purchase of the business? (Consider facilities, FF&E, your involvement, hours of operation, operational improvements, supplier considerations, etc.) |
| General facility | How well does the facility meet your needs to sustain and grow the business? |
| Quality of FF&E | What is the condition of the furniture, fixtures, and equipment? |
| Owner’s involvement | How involved must the owner(s) be in day-to-day operations? |
| Hours of operation | How reasonable are the hours of operation for the business? |
| Market flexibility | What is your ability to adjust to local market conditions? (Consider changes in hours, pricing, advertising, product mix, suppliers, etc.) |
| Supplier availability | How generally available are suppliers you need for the business? |
| Supplier reliability | How reliable are the proposed product/service suppliers? |
| Supplier pricing/incentives | How competitive are the pricing and incentives offered by proposed suppliers? |
| Staff considerations | How well do the overall staff considerations, such as recruitment, training, retention, etc., support your purchase of the business? |
| Staff recruitment | What is the general market availability for employees? (Consider new, additional, replacement, entry level, experienced, etc.) |
| Staff training availability | What are the available training resources for new/existing employees? (Consider inside, supplier/partner provided, paid outside, etc.) |
| Staff training requirements | What level of new/existing employee training will you need? |
| Support | How do you rate the levels of support you will get with the business purchase? (Consider professional services, operational support, restrictions, etc.) |
| Professional services | What level of outside professional services will you need? (CPA, attorney, consultants, etc.) |
| Operational support provided | What level of initial operational support will others provide? |
| Operational support needed | How much initial operational support will you need? |
| Operational restrictions | What are the operational restrictions imposed on the business? |
| Royalties and services | How well do the royalties for provided services fit the business model? (National advertising, ad co-op program, employee training, management assistance, etc.) |
| Third-party review | Do you have third-party professionals to review the financial projections, franchise value, and business plan presented by the franchiser? |
| Third-party review results | How well does third-party review support the franchise asking price? |
| Advertising | How well does the overall advertising support, including levels, partner supplied, wholly paid vs. co-op, etc., encourage your purchase of the business? |
| Advertising – General | What total level of advertising do you need to sustain and grow the business? |
| Advertising – Partner | How do you rate the level of “free” advertising provided by outside sources? (Consider national, supplier, other partners, etc.) |
| Advertising – Wholly paid | What level of advertising does the business pay for wholly? |
| Advertising – Co-op | How much co-op advertising is available to the business? |
| Contractual considerations | How well do the overall contractual considerations, such as confidentiality, purchase terms, transition, purchase options, etc., meet your needs? |
| Confidentiality/nondisclosure | Do you have a confidentiality and nondisclosure agreement in place between you, the seller, and any business brokers involved in the purchase? |
| Escrow/Closing attorney | Do you have an escrow and closing attorney to represent your interests in the transaction? |
| Purchase terms | How well do the financial terms of the purchase agreement and/or your pre-arranged financing meet your needs? (Consider down payment, interest rate, repayment term, monthly payment, etc.) |
| Transition period | How reasonable is the operational transition/start-up period in the purchase agreement? |
| Due diligence overview | How well do the due diligence results, including accounting (financial), inventory, liabilities, taxes, legal, regulatory, and insurance issues, support your purchase? |
| Accounting due diligence | How well do the accounting due diligence results support the purchase price? (Consider accounting method, revenue recognition, recasting of financials, employee compensation, inventory, receivables, payables, etc.) |
| Accounting method | How appropriate is the proposed accounting method for this type of business? (Consider cash vs. accrual) |
| Employee compensation | How well does overall employee compensation compare with the norms for this type of business? |
| Wages and salaries | How well do projected employee wages and salaries fall within industry and local market norms? |
| Inventory due diligence | How well does the inventory due diligence support the asset value carried on the books? (Consider inventory for resale, obsolete inventory, inventory method, equipment, furniture and fixtures, etc.) |
| Inventory system | Is the proposed inventory method the most appropriate for this type of business? (Consider LIFO, FIFO, average cost, etc.) |
| Inventory | How realistic are proposed inventory levels for a start-up business? |
| Receivables due diligence | How well is the true value of receivables accurately reflected in financial statements? (Consider receivables accuracy, status, collection, questionable, bad debts and reserves, etc.) |
| Receivables status | How good is the projected payment flow for receivables, if any, for the business? (Consider 30, 60, 90, over 90 days) |
| Bad debt reserves | Do the financial projections reflect adequate bad debt reserves, if needed, for the business? |
| Liabilities due diligence | How well disclosed are the full liabilities to be assumed, if any? |
| Franchise fees | Evaluate the initial and annual franchise fees? (Initial, flat annual, percentage of revenue, etc.) |
| Legal due diligence | How well are legal contracts documented and disclosed? (Consider non-compete covenants, intellectual property, material agreements, client contracts, supplier contracts, etc.) |
| Non-competition covenants | Are non-competition covenants, if any, associated with your purchase fully disclosed and reasonable? (These can be beneficial or harmful.) |
| Non-competition covenants value | How would you rate the value of non-competition covenants, if any, to your purchase of the business? |
| Litigation | Is there any threatened, pending, or current litigation against the franchiser that potentially could affect franchisees? |
| Intellectual property | How well protected is the franchiser’s intellectual property, if any? (Consider copyrights, trademarks, etc.) |
| Contract restrictions | What level of operational flexibility to ensure profitability does the franchise agreement permit? |
| Regulatory due diligence | How well are regulatory compliances documented and disclosed? (Consider OSHA, EPA, required permits, levels of compliance, etc.) |
| Regulations | How heavily regulated is this type of business? (Consider employment, safety, transportation, environmental, hazardous waste, etc.) |
| Environmental due diligence | How well are environmental issues managed by the business? (Consider emissions, hazardous waste handling and disposal, drainage, run-off, internal air quality, etc.) |
| Environmental | Does the proposed business plan adequately address potential environmental issues, if any? (Consider emissions, hazardous waste handling and disposal, drainage, run-off, internal air quality, etc.) |
| Insurance due diligence | How well are required insurance policies documented and disclosed? |
| Insurance | How extensive is your level of consideration about the necessary insurance for this type of business? (Consider business liability, property, product liability, errors and omissions, business income, automobile, worker’s compensation, etc.) |
This site is intended as an informational tool only and should be used in consultation with appropriate professional advisors.
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