Buying a Franchise: How to Investigate Outlet Closures

The fact that a brand has closed outlets is not enough to rule it out; nor do announcements of new openings prove that it is a good investment. Before joining a franchise network, it is worth establishing what happened to the outlets that stopped operating. The aim is not to assign blame, but to identify whether the causes could recur in the business you are being offered.

1. Request a history that distinguishes closures from other changes

Start by asking for a list of outlets that opened, closed, relocated or changed hands over a defined period. You could suggest the past three years as a basis for your review, without presenting this as a legally required timeframe.

A change of ownership is not the same as a closure, and relocation does not necessarily mean failure. An outlet may also still be operating but no longer trading under the brand. Distinguishing between these situations helps avoid misleading conclusions.

For each case, request the following details:

• Opening date and date of closure or change.
• Whether the outlet was company-owned or franchised.
• Format and general location.
• Reported reason for the closure or change.
• Whether it reopened, relocated or came under a new operator.

Cross-check the list against outlet directories, the brand’s publications and available business records. A location disappearing from the official website is a reason to ask questions, not sufficient proof of permanent closure.

Also record who provides each explanation. The franchisor’s account, the former operator’s account and a business announcement may describe different events or different points in time.

2. Understand what information Argentine law requires

In Argentina, franchise agreements are specifically regulated by Articles 1512 to 1524 of the National Civil and Commercial Code.

Article 1514(a) requires the franchisor, before the agreement is signed, to provide economic and financial information covering two years of performance for outlets similar to the one being offered, which have operated for a sufficient period in Argentina or abroad.

This obligation should not be confused with a specific duty to provide a closure history in your chosen format and for your chosen period. The list of closures is an additional request to help assess the investment, which should be made explicitly during negotiations. General principles of good faith also apply at this stage.

Use both sources together: financial track records allow you to examine comparable outlets, while the closure history helps you question whether those outlets reasonably reflect the network’s experience or only its best results.

If relevant records are missing, identify the specific uncertainty and consult a lawyer about how it affects your decision. Do not treat an incomplete response as automatic grounds for an accusation, but do not sign on the assumption that you can clarify matters later either.

3. Investigate the causes and look for similarities with your plans

An explanation such as “the franchisee was not committed” is insufficient for assessing risk. Ask for facts that help explain what went wrong: premises costs, demand, operational difficulties, supply problems or a lack of funds to keep the business running.

Where possible, speak to former operators willing to share their experience. You do not need customers’ personal data or confidential documents belonging to third parties. Ask what obstacles arose, when they were identified and what steps were tried before the outlet closed.

Organise each case into three columns: stated cause, available evidence and potential relevance to your future outlet.

For example, if an outlet closed because its lease ended, investigate whether this was an isolated decision by the landlord or whether the business could not afford to renew. If the closure is attributed to an unsuitable location, ask how that location was approved and what has changed in the site-selection process.

Look for patterns among outlets with the same format or in markets similar to your proposed location. Several consistent accounts warrant further investigation; they do not, on their own, prove a common cause. Where accounts differ, record the discrepancy rather than automatically choosing the most favourable version.

4. Turn your findings into an evidence-based decision

Before proceeding, prepare a brief summary of the risks identified. For each one, note the response you received, the supporting evidence and what remains unresolved.

Ask the brand to explain the corrective measures introduced after relevant closures. A useful response identifies a specific measure and explains how you can verify that it has been implemented. “We make better choices now” gives you little to check.

If a proposed solution affects your purchase, seek professional advice on documenting it: for example, an additional site assessment before you make any commitments. Do not accept generic assurances of success as a substitute for an outstanding review.

Practical takeaway: before buying, investigate closures that are comparable to your proposed business and verify what has changed since then. The decisive question is not how many outlets closed, but what risks those closures reveal for your investment.