Buying a franchise: what to check before you sign, new or resale
By Grig Kochedykov · . US rule read on the eCFR (point in time 1 October 2026); Spanish rules read on the BOE; Australian Code and the Adelaide case as quoted in Buying a Small Business in Australia; read 2 November 2026.
Before you sign a franchise agreement, the franchisor owes you its papers, and the law sets how many days ahead. Use those days to read four parts of the papers and to call people who left the network.
One trap comes first. If you buy an existing outlet from the franchisee who runs it, the papers may not come at all. Find out before you agree a price.
In short: four things before you pay
- Get the franchisor's disclosure document, and count the days: the law gives you time to read it.
- Read four parts: what outlets earn, which outlets closed, the terms for leaving and selling, and the franchisor's accounts.
- Call franchisees who left, not only the ones the franchisor suggests.
- Ask what the profit figure you were shown includes, and what it leaves out.
General information, not legal or tax advice. The rules below are examples from three countries.
How many days, in three countries
| Country | What the law gives you | Source |
|---|---|---|
| United States | The franchisor must give you its disclosure document "at least 14 calendar-days before" you sign a binding agreement or make any payment. If it changes the agreement on its own and in a material way, you get the new version at least seven calendar days before you sign it | 16 CFR 436.2 |
| Spain | At least 20 working days ("veinte días hábiles") before you sign a contract or pre-contract, or pay anything, the franchisor must give you written information that is "veraz y no engañosa": true and not misleading | Ley 7/1996, art. 62; Real Decreto 201/2010, art. 3 |
| Australia, buying an existing franchise | The franchisor must consent to the transfer and "must not unreasonably withhold consent". If you take over the seller's agreement, the franchisor gives you the agreement and the disclosure documents and waits 14 days before it consents | Franchising Code, ss 24, 48 and 49, as quoted in chapter 11 of Buying a Small Business in Australia |
The resale trap, in the US rule
The US rule defines what counts as a franchise sale. Its definition "does not include the transfer of a franchise by an existing franchisee where the franchisor has had no significant involvement with the prospective transferee." And: "A franchisor's approval or disapproval of a transfer alone is not deemed to be significant involvement."
In plain words: if you buy an outlet from its owner, and the franchisor only approves you, the 14-day rule may not apply to your purchase. You can ask the franchisor for its current disclosure document. Ask in writing, before you agree a price with the seller.
Four parts of the papers to read
In the US the disclosure document has numbered items. Spain and Australia ask for much the same information under other names.
| What | Where in the US document | What to look for |
|---|---|---|
| What outlets earn | Item 19 | Whether it gives figures at all, for which outlets and which years. The rule also allows the franchisor to give you "the actual records of an existing outlet you are considering buying". Ask for them |
| Which outlets opened, closed and changed hands | Item 20 | Outlet counts for three years, the contacts of current franchisees, and the names of those who left in the last year. In Spain, the number of franchisees who left the network in the last two years, and why |
| Leaving and selling | Item 17 | Renewal, termination, transfer: who decides, on what grounds, at what cost |
| The franchisor's money | Item 21 | The franchisor's financial statements: can it deliver the support it promises? |
Spain adds one more rule. If the franchisor gives you forecasts of sales or results, they "deberán estar basadas en experiencias o estudios, que estén suficientemente fundamentados": they must rest on experience or studies with a sound basis. Ask which outlets and which years the forecast comes from.
A real case: the word "profit"
A franchise café in central Adelaide was sold in June 2016 for A$410,000. The buyer was shown a figure presented as net profit, the owner's return: A$126,300.77 a year. The buyer ran the café for more than two years and lost A$79,162 in the 2016–17 financial year and A$105,036 in 2017–18.
The District Court of South Australia said of the figure: "It is not net profit. It is a calculation of earnings before income tax, depreciation and amortisation, EBITDA." And: "A purchase price of $410,000 could not be justified on any basis." The court also found that the franchisor had not disclosed an earlier franchisee at the same site. ([2021] SADC 88 at [817], [819] and [943], as quoted in chapter 5 of Buying a Small Business in Australia.)
EBITDA is a real measure. It comes before the loan interest, before the tax and before the coffee machine wears out. You pay all three. So when you see "profit" on a franchise outlet, ask what is taken out before it, and ask for the outlet's own accounts.
What to ask, in writing
To the franchisor:
- Please send your current disclosure document, with every attachment.
- For this outlet: its sales and costs by month for the last three years.
- Has anyone else held this site or this territory? Why did they leave?
- What fee do you charge on a transfer, and who pays it?
To two or three franchisees who left the network: would you buy again, and what did the papers not tell you?
Before any of this: the listing
A franchise resale listing may give a price and a turnover and leave out the rest. Our free extension for Chrome and Edge reads a business-for-sale listing. "Open a business-for-sale listing and press “Download PDF”. You get a report on the 12 things a check of the business needs: what the listing says about each, and which ones it does not say." "The extension does not guess: when the page is not clear, the line says “not stated”." Each "not stated" is a question for the seller.
Your next three steps
- The extension. Add to Chrome — free or Add to Edge — free. Reading on your phone? Open this page on your computer. More on our extension page.
- Your account. "Saving a listing takes a My list account. In it, the listings you save from different sites sit in one place." Create my account.
- The check, for the business you would put a deposit on. From our pricing page: "€550: from the public records, which debts can follow the business under the rules that apply where it is, and what decides whether the permit and lease pass to you". It needs "enough to identify the business — its legal name, its registration or tax number, or its trade name and town." Start for €550. "€950: everything in the €550 report, plus the seller's figures checked against the seller's own papers — tax returns or the accounts the company filed." Start for €950. "Your report comes in your language: any of 181, chosen on the order form." "We do not contact the seller." "You pay only if we take it on." Within 12 weeks of receiving the €550 report, pay the price difference for the €950 report: what you paid counts in full.
Sources
- 16 CFR Part 436, Disclosure Requirements and Prohibitions Concerning Franchising, sections 436.1, 436.2 and 436.5 (eCFR, point in time 1 October 2026) (retrieved 2 November 2026)
- Ley 7/1996, de Ordenación del Comercio Minorista, article 62 (BOE) (retrieved 2 November 2026)
- Real Decreto 201/2010, article 3, Información precontractual (BOE) (retrieved 2 November 2026)
- Buying a Small Business in Australia, a book by Grig Lien, chapters 5 and 11 (Franchising Code, ss 24, 48 and 49; District Court of South Australia, [2021] SADC 88) (retrieved 2 November 2026)
- Provenance Diligence, Free extension (retrieved 2 November 2026)
- Provenance Diligence, Pricing (retrieved 2 November 2026)