Franchise Due Diligence Checklist
20 checks to run before you sign any franchise agreement in India — the public records to look up, the clauses to read and the red flags to walk away from.
Public Records Anyone Can Check
0/4 verified
Who You Actually Sign With
The brand name on the shopfront and the party on your agreement are often different. Find the exact legal entity you will pay and sign with, and what kind of entity it is.
Red Flags to Watch
The agreement is with a proprietorship or partnership firm — there are no public accounts, and the owner's personal estate is the only thing standing behind the contract. The company named on the agreement is different from the one on invoices or the website. The company has stopped filing its annual accounts.
Who Owns the Brand Name
You are paying to use a brand. If the trademark belongs to a director personally, a sister company or an unrelated party, the franchisor may not be able to guarantee your right to use it.
Red Flags to Watch
The trademark is registered to someone other than the franchisor company, with no licence agreement you can see. The application is still pending or has been opposed. The mark is registered in a class that doesn't cover the business you are buying.
Loans Secured on the Company & Insolvency
A franchisor in financial trouble may not be around to deliver supplies, training or support you have already paid for.
Red Flags to Watch
An insolvency case against the franchisor or its parent at the NCLT. Several recent charges (secured loans) registered on the company's assets. Losses and negative net worth in the last filed accounts.
Assured-Return or Buy-Back Schemes
Some 'franchise' offers are really investment schemes: you pay money and the company promises a fixed monthly return or to buy the unit back. These carry far more risk than a franchise you run yourself.
Red Flags to Watch
A fixed monthly 'rental' or 'return' regardless of how the outlet performs. A promise to buy back your investment at a profit. You aren't expected to run anything — the company operates the unit. Returns paid from new partners' money.
Company Verification
0/5 verified
GST Registration & Tax Compliance
A legitimate franchisor must be GST-registered. This confirms they are a recognised business entity filing regular returns with the government.
Red Flags to Watch
No GST number provided, GSTIN status shows 'cancelled' or 'suspended', reluctance to share tax details, or GST registration date much newer than claimed company founding date.
Company Incorporation & Age
The company's incorporation date reveals its true age. Many franchisors exaggerate their operating history. A company should ideally have 3+ years of operations before franchising.
Red Flags to Watch
Company incorporated less than 2 years ago but claims decades of experience. Director names don't match the people you're dealing with. Multiple similar companies registered (shell company pattern).
Actual Outlet Count Verification
Franchisors often inflate their outlet numbers to appear more established. Verify the actual count of operational outlets — not just 'signed agreements'.
Red Flags to Watch
Claims 500+ outlets but you can only find 20 on Google Maps. Counts 'agreements signed' instead of 'operational outlets'. No outlet addresses provided. Outlets listed are mostly in one city despite claiming pan-India presence.
Closed Outlets & Churn
Every franchise network has closures. How many outlets shut, and why, tells you more than how many opened.
Red Flags to Watch
'No outlet has ever closed' (almost never true). Closures blamed entirely on franchisees. Outlets on the store locator that are shut when you call or visit. The outlet count keeps changing between the brochure, the website and the sales pitch.
Legal Disputes & Litigation History
Check if the franchisor has pending lawsuits from existing franchisees. Multiple cases indicate a pattern of broken promises or unfair practices.
Red Flags to Watch
Multiple consumer complaints on forums. Cases filed by franchisees in consumer courts. Company has changed names multiple times. Directors have been associated with previously failed businesses.
Financial Due Diligence
0/4 verified
Total Investment Cost Breakdown
Get a detailed, line-by-line breakdown of every rupee you need to invest. The franchise fee is just the beginning — setup, interiors, equipment, inventory, and working capital add up quickly.
Red Flags to Watch
Only franchise fee is mentioned upfront, with 'additional costs' vaguely described. Total investment jumps significantly from initial discussion to final agreement. No written cost breakdown provided. Costs described as 'approximate' without firm quotes.
Hidden & Ongoing Fees
Beyond the franchise fee, many franchisors charge royalties, marketing fees, technology fees, training fees, renewal fees, and audit fees. Understand every recurring cost.
Red Flags to Watch
The royalty base isn't defined (gross or net sales), or a minimum royalty is payable even in months you make a loss. Marketing fund has no accountability or reporting. Technology/software fees seem excessive. Penalty clauses for minor infractions.
Actual Franchisee Earnings Verification
The projected P&L statement provided by the franchisor is often optimistic. Verify actual earnings from existing franchisees before making any decisions.
Red Flags to Watch
Profit projections show breakeven in 3-6 months (unrealistic for most businesses). No existing franchisees willing to share financials. Revenue projections don't account for seasonality or local competition. 'Guaranteed returns' promises — no franchise can guarantee returns (see the public-records section).
Refund & Exit Policy
Understand what happens to your investment if the business doesn't work out. Many franchisees discover too late that their franchise fee is 100% non-refundable with no exit option.
Red Flags to Watch
Zero refund under any circumstance. No exit clause in the agreement. Franchisor keeps all equipment and inventory on termination. You must pay remaining years' royalty even after exit.
Agreement Review
0/4 verified
Territory Exclusivity Rights
Territory exclusivity means the franchisor won't open another franchise or company-owned outlet within your designated area. Without this, you could face competition from your own brand.
Red Flags to Watch
No defined territory in the agreement. Territory is described vaguely (e.g., 'South Delhi' instead of specific pin codes). Franchisor reserves the right to open company-owned outlets in your area. Online sales are excluded from territory protection.
Exit Clause & Termination Rights
You must understand under what conditions you can exit the franchise and what it will cost you. A fair agreement allows both parties to terminate with reasonable notice.
Red Flags to Watch
Only the franchisor can terminate, not you. Exit requires paying remaining term's royalty as penalty. You cannot sell or transfer the franchise to someone else. Non-compete prevents you from working in the same industry after exit.
Renewal Terms & Conditions
Most franchise agreements are for 5-10 years. Understand what happens at renewal — will fees increase? Can the franchisor refuse renewal? Will you need to reinvest in store renovation?
Red Flags to Watch
Renewal is at the 'sole discretion' of the franchisor. Renewal fee is equal to the initial franchise fee. Franchisor can change terms significantly at renewal. No renewal option mentioned in the agreement.
Non-Compete & Restrictive Clauses
Non-compete clauses restrict what you can do during and after the franchise relationship. While some restriction is normal, overly broad non-competes can trap you.
Red Flags to Watch
Non-compete lasts 5+ years after termination. Geographic restriction covers entire state or country. Restriction covers all business activities, not just competing brands. Non-compete applies even if the franchisor terminates you without cause.
Operational Check
0/3 verified
Training Programme Quality & Duration
Proper training is the foundation of a successful franchise. The franchisor should provide comprehensive initial training and ongoing support — not just a 2-day crash course.
Red Flags to Watch
Training is only 1-3 days. Training is 'online only' with no hands-on component. No training manual or SOP documentation provided. No ongoing training or refresher programmes. Training fee is charged separately and is expensive.
Supply Chain Terms & Pricing
Many franchise models require you to purchase supplies exclusively from the franchisor or their approved vendors. This can significantly impact your margins if prices are inflated.
Red Flags to Watch
Must buy all supplies from the franchisor at prices higher than market rate. No option to source locally even for generic items. Minimum order quantities are unreasonably high. Supply chain penalties for purchasing from non-approved vendors.
Marketing Support & Commitments
Most franchisors collect a marketing fee (1-5% of revenue). Ensure this money is actually spent on marketing that benefits your outlet, not just the franchisor's corporate branding.
Red Flags to Watch
Marketing fund has no transparency or reporting. Funds are spent on national campaigns that don't drive local traffic. No local marketing support provided. Marketing fee is high but the brand has minimal market presence. No digital marketing or social media support.
Download the Printable Checklist
A one-file copy of all 20 checks, with space to tick them off — to print or take to meetings with the brand.
This checklist is provided for informational purposes only and does not constitute legal or financial advice.