What is the role of due diligence in determining the estimated investment ranges for a Fitstop franchise?
Fitstop Franchise · 2024 FDDAnswer from 2024 FDD Document
General Note. The estimated investment ranges were prepared based upon and accounting for: (i) various sources of information, including (a) the experience of our affiliates developing two (2) System Businesses (each, an "Affiliate Business") over the past 18 months, (b) the experience of our Affiliate Franchisor and its System franchisees that have Franchised Businesses operating or under development in Australia, (c) information we have received from our current third-party Approved Suppliers for certain investment items or categories above, (d) information and data that we have received from various real estate brokers and/or other sources for information with respect to current real estate and commercial leasing markets, and (e) various other due diligence; and (ii) a number of expectations and reasonable assumptions that we make as part of our standard franchise offering, such as franchisee (a) securing an approved Premises and opening the Franchised Business within the prescribed timelines set forth in your Franchise Agreement (and on or before the Rent Commencement Date under the lease for the Premises), and (b) ensuring that the Premises is built out in accordance with our current System standards, specifications and processes, and (c) using our Approved Suppliers for certain Required Items as set forth in the Chart above and in Item 8 of this Disclosure Document below.
Source: Item 7 — TEM 7: ESTIMATED INITIAL INVESTMENT (FDD pages 15–19)
What This Means (2024 FDD)
According to Fitstop's 2024 Franchise Disclosure Document, due diligence plays a significant role in establishing the estimated initial investment ranges for a new franchise. Fitstop compiles these estimates using various sources of information, including the experience of its affiliates in developing System Businesses, the experience of its Affiliate Franchisor and its franchisees in Australia, data from third-party Approved Suppliers, real estate market information, and other due diligence findings. This comprehensive approach ensures that the investment ranges reflect real-world conditions and costs. These estimates also rely on certain assumptions, such as the franchisee securing an approved premises and opening the Franchised Business within specified timelines, completing build-out according to System standards, and using Approved Suppliers for required items.
The estimated investment ranges are influenced by factors identified through due diligence, such as the location of the premises (e.g., suburban vs. densely populated area) and market conditions. For example, the security deposit for a lease can vary significantly, with the low end of the estimate assuming a suburban or rural area requiring 1-2 months' rent as a security deposit, while the high end assumes a higher-end real estate market requiring 2-3 months' rent. Similarly, rent costs are expected to vary based on demand, population demographics, and lease negotiations. Fitstop's due diligence includes gathering information from real estate brokers and consultants to understand these market-specific variations.
Prospective Fitstop franchisees should understand that these investment ranges are estimates and can vary based on individual circumstances and local conditions. The FDD advises franchisees to carefully review these figures in light of local conditions and the local economy, and to consult with their accountant. While Fitstop relies on its experience and industry data to compile these estimates, franchisees must conduct their own due diligence to assess the specific costs and conditions in their chosen Designated Territory. This includes evaluating real estate costs, local market conditions, and the potential for negotiating favorable lease terms. By conducting thorough due diligence, franchisees can better prepare for the financial investment required to start and operate a Fitstop franchise.