As part of the investigation of any franchise opportunity I always recommend that the potential franchisee also have an accountant evaluate the franchisor’s audit financials that are included in the Disclosure Document (FDD).
The accountant should determine if the franchisor is financially strong enough to support the system that is already in place and the growth that is anticipated (Item 20 of the FDD provides this information). It is important that a potential franchisee not invest his or her time and money into a franchise system that is likely to file for bankruptcy. If that were to occur, the franchisee may still be required to pay royalties and other fees, but to a trustee, guardian or receiver in Bankruptcy, and may receive no product or support in return for payment of those fees.
There are some excellent resources available to those looking to buy a franchise – FTC – http://www.ftc.gov/bcp/edu/pubs/consumer/invest/inv05.shtm; Illinois Attorney General publication – http://www.illinoisattorneygeneral.gov/publications/pdf/b4ubuy.pdf; the Small Business Administration (SBA) – http://www.sba.gov/smallbusinessplanner/start/buyafranchise/SERV_SBP_S_FGUIDE.html..