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For many, the start of the New Year means lists, resolutions and rankings. The media is no exception, and an industry publication recently released a ranking of the top franchises for 2016.
Although many familiar brands might populate the list, readers of this franchise law blog might take more interest in the methodology of the rankings. Parallels can be drawn to the due diligence that a franchise law attorney conducts on behalf of a potential franchise owner.
For starters, franchisors were asked to participate in a survey and complete a Franchise Disclosure Document. The selection process included certain absolute parameters: companies in a Chapter 11 were excluded, and eligibility was also contingent on whether a company was actively seeking new franchisees in the United States.
Beyond those requirements, the evaluation utilized objective, quantifiable measures of each franchise’s operation. Although a description of a franchise’s success might seem qualitative, there are measurable benchmarks of success. Factors included each franchise company’s growth rate, size, the number of years a company had been in business, startup costs, financial numbers, litigation history, terminations and certain financing data.
However, as a law firm that focuses on franchise law, we know that subjective factors can also be important to a potential franchise buyer. In fact, we might go so far as to say that factors like franchisee satisfaction and management style should be included in any due diligence. The research of these factors might be more anecdotal, perhaps gathered from surveys or conversations with other franchisee owners in a certain geographic area.
Learn more about factors to consider before buying a franchise.
Source: Entrepreneur, “2016 Top Franchises from Entrepreneur's Franchise 500 List,” copyright 2016, Entrepreneur Media, Inc.