Questions to Ask When Buying an Existing Franchise
For a buyer weighing a franchise resale, with questions for the owner who is selling and for the franchisor who has to approve you. The list runs in the order a deal does: the reason for the sale, the unit's numbers, the franchise term and the lease, the transfer itself, required upgrades and training, and the staff and customers you would inherit.
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The questions
Each question, and why to ask it
The sale
Why are you selling, and why now?
Why ask it
Retirement, a move, or an owner with several units trimming down are ordinary reasons, and you will usually hear one of them. Test the answer against the calendar: a sale that comes just before a lease renewal, a required remodel or the end of the franchise term often has that cost somewhere behind it.
How long have you owned this unit, and did you open it or buy it from someone else?
Why ask it
An owner of twelve years who built the place knows why every odd thing in it is the way it is. A unit on its third owner in a few years is a different purchase, so have the franchisor tell you how many times this location has changed hands and what became of each owner.
How long has the unit been for sale, and has an earlier deal fallen through?
Why ask it
A deal that died over the buyer's financing says little about the unit, and one that died after the buyer saw the books or met the franchisor may say a lot. Find out at what stage it ended and whether the franchisor turned that buyer down, then check the story with the franchisor.
What is the asking price based on, and what exactly does it include?
Why ask it
Get the method first, which is often a multiple of what the owner earns in a year, and then the list: equipment, inventory, deposits, the customer accounts. Whether the transfer fee and any required upgrades sit inside the price or on top of it matters more on a resale than the headline figure does.
Are you selling the assets or the company that holds the franchise?
Why ask it
The structure decides which old debts and obligations could come along with the business, and it can change how the franchisor and the landlord treat the transfer. Take this one to your lawyer and accountant before the offer, because the rules and the tax treatment differ from place to place.
Do you own other units, and are you keeping them?
Why ask it
A seller who keeps the stronger units and sells this one has ranked them for you. Ask how this location compares with the others on sales and labor, and whether a shared manager, shared staff or shared supply runs disappear once it is split off.
What equipment is included, how old is it, and which pieces are leased?
Why ask it
Walk the unit with the list in hand and ask for service records on anything expensive to replace. Leased equipment does not become yours with the sale, so find out whether each lease can be taken over and on what terms.
Would you finance part of the price yourself?
Why ask it
A seller willing to be paid some of the price out of future profits is betting on the unit alongside you, and a flat no is worth a follow-up about why. Check with the franchisor and your lender before you count on it, since either may limit a seller's loan or set terms for it.
The numbers
Can I see three years of profit and loss statements, tax returns and the sales reports you sent the franchisor?
Why ask it
Few owners overstate the sales they pay a royalty on, which makes the royalty reports the figures to trust first. Where the statements, the tax returns and those reports disagree, go through the gap line by line with the seller.
What have sales done month by month over the last three years?
Why ask it
Monthly figures show the season, the slow slide and the month a competitor opened, all of which a yearly total hides. Have the seller explain each dip and each jump, and check whether a one-time event sits inside the best year.
What has happened nearby that changed sales: road works, a new competitor, another unit of the same brand?
Why ask it
Follow up with the franchisor on what it is allowed to open near this territory and whether anything is planned. A new unit of your own brand two miles away can take more sales than a rival does.
Where does this unit rank in the system on sales, and how has that changed?
Why ask it
Put this to the franchisor as well as the seller. A unit in the bottom third under an experienced owner needs a cause you can fix, such as short hours or thin staffing, and not one you cannot, such as the street it sits on.
What did you take home last year, in salary and profit together?
Why ask it
Add the two, then subtract what it would cost to pay someone for the hours the owner puts in. What is left has to cover your loan payments and still be worth the risk.
Which expenses in the statements are personal, and which costs are missing because you or your family do the work?
Why ask it
Both change the real profit, in opposite directions. A car or a phone run through the business can be added back, but a spouse who keeps the books for free is a wage you will have to start paying.
What do royalties, the ad fund, technology fees and required purchases add up to each month?
Why ask it
Have the seller show a recent month's statement from the franchisor, not an estimate. Then ask the franchisor whether those rates hold for a new owner, because a transfer can move you onto the fees in the current agreement.
Does the business owe anything: loans, equipment leases, back royalties, taxes or supplier balances?
Why ask it
Ask for a list with balances and a name beside each one for who pays it off at closing. Unpaid royalties and ad fund contributions matter most, since a franchisor will commonly want them cleared before it approves a transfer.
Is the unit in a dispute with anyone right now: a customer, an employee, a supplier or the franchisor?
Why ask it
Whether an old claim can follow the business to a new owner depends on how the sale is structured and on local law, so pass anything the seller names to your lawyer. A quarrel with the franchisor counts twice, because the same company decides whether the transfer goes ahead.
Are there gift cards, prepaid packages or memberships that customers have paid for and not used yet?
Why ask it
Each one is a sale you will have to honor for money the seller already collected. Get the outstanding total from the point of sale system and settle in the purchase agreement which of you carries it.
Term and lease
How many years are left on the franchise agreement, and when does it come up for renewal?
Why ask it
A few years of remaining term is a short runway for paying back a purchase loan. Ask the franchisor what renewal costs, what conditions come with it, and whether it has ever declined to renew a unit that was in good standing.
Would I take over the seller's agreement, or sign the franchisor's current one?
Why ask it
Brands handle this differently, and the answer can reshape the whole deal. A current agreement may carry a different royalty, a smaller territory and new obligations, so ask for both documents and go through them clause by clause with a franchise lawyer.
If I sign a new agreement, does the term start over or do I only get what is left?
Why ask it
A fresh full term changes what the unit is worth to you, and so does a new initial fee if one is charged for it. Get the franchisor's answer in writing before you settle on a price.
What territory comes with this unit, and will it be the same for me?
Why ask it
Ask for the map or the written definition, not a description over coffee. Territories granted years ago are sometimes larger than what the brand offers today, and a transfer can be the moment one gets redrawn.
How long is left on the lease, and what renewal options does it have?
Why ask it
Read the lease itself, including who has to give notice to use an option and by when. The lease and the franchise agreement should run for roughly the same number of years: a franchise with eight years left in a space with two is at the landlord's mercy.
Will the landlord agree to assign the lease to me, and on what conditions?
Why ask it
Landlords often have to consent, and may ask for your financial statements, a personal guarantee or a higher rent in exchange. Meet the landlord before you make an offer, since a refusal here ends the deal however well everything else has gone.
What is the rent now, how does it rise, and what else does the lease charge?
Why ask it
Look for scheduled increases, a share of sales above a threshold, and charges for common areas, property taxes and insurance billed on top. Ask for two years of actual invoices, because the extras can move more than the base rent does.
Does the franchisor have rights over the site, such as holding the lease or stepping in if the franchise ends?
Why ask it
Some brands hold the main lease and sublet to the owner, and others attach a rider that lets them take over the space. Neither is unusual, but each one changes who you are really dealing with over the premises.
Are you personally guaranteeing the lease or the franchise agreement, and will you be released when the sale closes?
Why ask it
A seller who stays on the hook has a reason to care how you run the place, and may want protections written into the contract because of it. You will probably be asked to sign guarantees of your own, so have your lawyer explain what they cover and how far they reach.
The transfer
What does the franchisor require to approve a buyer, and how long does approval take?
Why ask it
Expect an application, financial minimums, a background check and interviews, though each brand sets its own list. Ask for the criteria in writing and apply early, so that a rejection comes before you have paid for inspections and legal work.
How much is the transfer fee, and which of us pays it?
Why ask it
The amount is normally set out in the franchise agreement and may be a flat sum or a share of the current initial fee. Who pays is between you and the seller, so settle it in the offer and not at the closing table.
Does the franchisor have a right of first refusal on this sale?
Why ask it
If it does, the franchisor can match your offer and buy the unit itself after you have done the work of pricing it. The two details to get are how long it has to decide and whether it will waive the right early.
Is the unit in good standing with the franchisor, and has it ever been sent a default notice?
Why ask it
Hear it from the seller, then have the franchisor confirm it in writing. Open defaults generally have to be cured before a transfer goes through, and the point to settle is which of you pays for the cure.
Can I see the last few inspection or audit reports from the franchisor?
Why ask it
These score the unit against brand standards and say in plain terms what was wrong on the day. The same mark repeated across several visits points to something structural, such as worn-out equipment or a layout the brand no longer accepts.
Which licenses and permits does this unit trade under, and can they pass to a new owner?
Why ask it
A liquor license, a health permit or a childcare registration is often issued to a person or a company and not to an address. Call each office that issued one and find out how a change of owner works there and how long it takes, because a wait for paperwork after closing is a wait with the doors shut.
Will I receive the current disclosure document before I commit, as a new franchisee would?
Why ask it
Rules on what a resale buyer must be given vary by country and state, so ask the franchisor how it works where the unit is. Whatever the rule, request the latest document and read the fees, the owner's obligations and the tables of units sold and closed.
Will the franchisor ask the seller, or me, to sign a release as part of the transfer?
Why ask it
Releases are a common condition of approval and can give up claims against the franchisor. Have a franchise lawyer read anything of this kind before either of you signs it.
Have other units in this brand been resold lately, and can I speak to the people who bought them?
Why ask it
A buyer one year in can say what the transfer really cost, how long it took and what the franchisor asked for after closing. Take the names the franchisor offers and find one or two on your own as well.
Upgrades and training
What remodel or upgrades does the franchisor require as a condition of the transfer?
Why ask it
Many agreements let the franchisor bring a unit up to current standards when it changes hands, and on an older site the bill can be a large part of what you pay overall. Get the scope in writing with a deadline, then a contractor's quote, before you offer.
When was the unit last remodeled, and when is the next one due on the brand's schedule?
Why ask it
A unit sold a year before a required refresh is being sold with that cost attached. If the seller was granted an extension, ask the franchisor whether it carries over to you.
Is the point of sale system, the signage or any required technology about to change?
Why ask it
Brand-wide rollouts usually fall on whoever owns the unit on the day they land. The franchisor can tell you what is planned for the next two or three years and what the last rollout cost each owner.
What training does the franchisor require for a new owner, and what does it cost?
Why ask it
Find out how long it runs, where it is held, whether it must be finished before closing and who pays for travel. Ask too what happens if you do not pass, since approval can depend on it.
Does my manager need to be trained or certified as well?
Why ask it
Some brands want a certified manager on every shift or a second trained person named on the agreement. If the current manager already holds the certificate and plans to stay, that is worth real money to you.
What support does a resale buyer get from the franchisor in the first ninety days?
Why ask it
A brand-new location often gets an opening team, and a resale may get much less. Pin down who your field contact will be, how soon they will visit, and whether anyone from the brand is on site in your first week.
Will you stay on after closing to train me, and for how long?
Why ask it
Brand training teaches the system, and only the seller can teach this unit: the regulars, the slow afternoons, the supplier who delivers late. Write the days, hours and any pay into the purchase agreement, since goodwill tends to fade once the money has moved.
Staff and customers
Which staff are staying, and do they know the unit is for sale?
Why ask it
Ask who has been told and how they took it. What happens to employees when a business is sold differs by place, so check with a local employment lawyer whether the staff move over to you or have to be rehired.
Who are the people this unit could not run without?
Why ask it
Usually it is a manager and one or two long-serving shift leads. Meet them before closing if the seller allows it, and ask the seller what it would take to keep each one.
What does a normal week look like for you in this unit?
Why ask it
Have them go through last week day by day: opening, covering shifts, ordering, payroll. That description is the job you are buying, and a unit said to run itself rarely does once the person who knows every workaround has gone.
What do you pay each role, and when were wages last raised?
Why ask it
Compare the rates with what nearby employers are advertising this month. A profit built on pay that has fallen behind the local market shrinks the first time a shift lead hands in notice.
Where do customers come from: walk-in traffic, regulars, delivery apps, or accounts you built yourself?
Why ask it
Traffic that comes from the location and the brand stays with the unit. Catering clients, school contracts and neighbors who come in to see the owner are relationships, so ask for an introduction to each one before the seller leaves.
Who answers the online reviews now, and do the listings and social pages come with the sale?
Why ask it
Read the last year of reviews yourself beforehand and look for the complaint that repeats. Then get it settled whether the review profiles, the local social pages and the phone number pass to you, stay with the seller or belong to the franchisor.
What have you been meaning to do here and never got around to?
Why ask it
The answer is the seller's own list of what the unit could still become: longer hours, catering, a school or office account nobody chased. Some of it will need the franchisor's sign-off, so check each idea against the agreement, and find out what stopped the seller.
Will you agree not to open or work in a competing business nearby?
Why ask it
The franchise agreement may already restrict the seller, but that promise is made to the franchisor and not to you. Ask your lawyer what a separate agreement between the two of you could reasonably cover where you live.
How to work through a franchise resale
Practical guidance for the conversation itself
Two sellers and a landlord
The owner sells the business, the franchisor sells the right
A resale is two deals at once. The owner can agree a price with you, but only the franchisor can let you trade under the name, so every answer about the term, the fees and the transfer has to come from the brand as well as from the seller.
Get the seller's permission for the franchisor to talk
Franchisors will not usually discuss a unit's sales, inspection history or standing with a stranger. A short written permission from the owner opens that file, and an owner who refuses to give one has told you something too.
See the landlord before the offer
The lease is the third signature the deal needs. An early conversation tells you whether the landlord will accept you, what they will want in return, and whether they have other plans for the space when the current term runs out.
Hire people who have done franchise transfers
A lawyer who reads franchise agreements every week will spot a transfer condition or a renewal clause far faster than a generalist. The same goes for an accountant who has seen the books of units in similar brands.
Testing the unit's numbers
Line up three sets of figures
Put the profit and loss statements, the tax returns and the royalty reports for the same years next to each other. Sales should match across all three, and each gap is a question for the seller, not an invitation to pick the version you like best.
Rebuild the profit with you as the owner
Take the seller's figures and change what will change: the royalty rate if you move to a current agreement, the rent after assignment, a wage for any work the family did unpaid, your own loan payments. The result is the business you would own, which can look quite different from the one advertised.
Sit in the unit at different hours
Visit as a customer at a weekday lunch, on a weekend evening and through a slow afternoon. Count the people through the door, watch how the staff work when the owner is out, and compare what you see with the sales the reports show for those hours.
Have reports run while you watch
Pick three or four weeks at random and have the seller run the sales reports for them from the point of sale system with you in the room. Totals that match the monthly figures you were sent are a good sign, and a seller who would sooner email them later has given you a reason to pick more weeks.
Before you put a number on paper
Add what the price leaves out
A full budget for a resale has more lines than the asking price: the transfer fee, travel for training, the required upgrades, deposits for the landlord and utilities, inventory at closing, legal and accounting fees, and cash to run on for the first months. Write the list out and price each line before deciding what the unit is worth to you.
Check the three clocks
Write down the years left on the franchise term, the years left on the lease with its options, and the date of the next required remodel. If your loan runs longer than the shortest of the three, either the price has to reflect that or the dates have to be fixed first.
Make the offer depend on the approvals
Offers on franchise resales are commonly written to be conditional on franchisor approval, the landlord's consent, financing and a satisfactory review of the books. Ask your lawyer which conditions to include and how long each one should stay open.
Decide in advance what would stop you
Before the negotiation gets friendly, list the findings that end it for you: sales that do not match the royalty reports, a landlord who will not assign, an upgrade bill you cannot fund. It is easier to walk away because of a list you wrote in a calm week than to walk away from a seller you have come to like.