Adequate due diligence on franchise systems is subtle and requires a very thorough evaluation of difficult-to-measure assets, including franchise revenue streams, consumer goodwill associated with franchise system marks and the effectiveness of proprietary operating systems.
The purchase of a franchise system differs substantially from the purchase of any other business because the key assets being acquired are intangible in nature: contract rights as embodied by the various franchise agreements, such as master franchise agreements, area development agreements and unit franchise agreements, and related items of intellectual property that brand the system and that enhance the value of the business, such as confidential operating systems.
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