Item 4 - BANKRUPTCYItem 4 lists any personal or professional bankruptcies, as they pertain to the executive team, franchisor ownership, or business.
While previous bankruptcy filings could be indications of the franchise's possible financial instability, it's important to review them in context. For example, bankruptcy resulting from a divorce proceeding may not be as concerning as a professional or business bankruptcy. If applicable, you might want to obtain professional advice regarding any bankruptcy filings to determine who filed, how long ago and reasons why.
- Get an understanding of the franchisors' financial stability.
- Franchisor key employee bankruptcies are rare, and worth noting.
- Always consider the context of the disclosed bankruptcies. Personal bankruptcies are not as much of a red flag as professional bankruptcies, as they're not necessarily pertinent to the business.