June 18, 2025 - Private equity is more accessible than ever—but it’s also more selective. If you're not ready, the opportunity you’ve worked toward could disappear overnight.

The franchise industry is experiencing industry-altering changes.

Across industries—whether it’s food and beverage, medical, fitness, or service retail—franchisors and multi-unit operators are drawing serious interest from private equity. Investors are hungry for brands with strong unit economics, clean systems, and scalable growth potential.

But here’s the hard truth: the majority of businesses are underprepared when the opportunity arrives.

And that lack of preparation doesn’t just slow the deal—it kills it.

What follows isn’t theory. These are the real reasons deals fall apart. If you're thinking about a sale, partnership, or even a debt raise to support growth, these are the seven things that can sabotage your transaction—and how to stay ahead of them.

1. Surprises in Due Diligence

Nothing kills confidence like a surprise.

Surprises don’t have to be big. It could be an untracked franchise agreement that expired last year. A lease missing a renewal clause. A location with six figures in CAM expenses nobody accounted for. Or a key vendor contract that auto-renewed after you switched providers—leaving you double-billed and unable to cancel.

When buyers uncover these issues in due diligence, their perception of your risk profile changes immediately. What felt like a clean, confident transaction becomes something else entirely. Messy. Risky. Overpriced.

And the result? They either walk—or they significantly lower their offer.

How to avoid it: Don’t wait until a term sheet to clean things up. Build your data room like you’re going to market—especially if you’re looking less than 2–3 years out from a transaction. That includes:

• Lease abstracts with current terms, options, and obligations
• Franchise agreements with clean start/end dates
• Vendor contracts, tax returns, entity docs, and corporate governance records
• A centralized system for managing it all (not Google Drive, and definitely not email)

Because when diligence begins, you don’t want to be reactive. You want to be ready.

2. Treating an Audit Like It’s Enough

Many founders or CFOs assume that because their financials are audited, they’re deal-ready.

But audits tell you what did happen. Buyers want to know what’s going to happen.

Enter the quality of earnings (QoE) report—your new best friend in any transaction.

A QoE begins with your GAAP net income, but it goes further. It adjusts for one-time events (like litigation), strips out non-operating costs, and very often, projects income from signed-but-not-yet-opened locations. It provides a normalized view of your earnings—usually in the form of adjusted EBITDA—which becomes the foundation for your valuation multiple.

Without it, you’re not telling the real story. And without the real story, buyers will write their own—often at your expense.

How to avoid it: Commission a sell-side QoE report at least 12–24 months before going to market. This gives you time to:

• See where your story breaks down
• Address expenses, unit-level performance, and reporting gaps
• Improve your numbers—and your narrative—before buyers see them

And don’t wait until a banker demands it. A good QoE report helps you run better even if you never sell.

3. Incomplete or Inaccurate Lease and Location Data

Real estate is one of the most overlooked risks in a transaction. But ask any experienced PE firm or lender, and they’ll tell you—it’s also one of the fastest deal killers.

Let’s say you operate 60 franchise locations. Sounds great. But:

• Do you know when each lease expires, and whether there’s a matching franchise agreement in place?
• Can you produce documentation on rent escalations, exclusivity clauses, or required brand refreshes?
• Have you mapped landlord responsibilities, capex triggers, or co-tenancy provisions that could materially impact P&L?

If not, you’re leaving critical details up to chance—and forcing the buyer to do detective work. That’s not how you earn a premium.

How to avoid it: Real estate is complex—but it doesn’t have to be chaotic. Get a platform (like Leasecake) that allows you to:

• Centralize all lease data, contracts and other key data and documents
• Track key dates and clauses across locations
• Create alerts for brand refreshes, rent increases, and lease options
• Cross-reference franchise agreements with physical locations

Real estate visibility doesn’t just help you close deals—it helps you operate smarter every day.

4. No Clear Plan for the Capital

It might seem like a dream scenario: a buyer offers to write a big check. But the very next question they’ll ask is: “What are you going to do with the money?”

If you don’t have a compelling answer—growth plan, investment thesis, return model—they’ll hesitate. And if your internal metrics (unit performance, COGS, margins, customer acquisition cost) aren’t dialed in, they may assume you’re not ready for scale.

How to avoid it: Start building your growth story before you ever talk to an investor. That includes:

• A 3–5-year roadmap with unit expansion targets
• Use-of-funds modeling
• Forecasted return scenarios
• A plan for how corporate infrastructure will evolve with scale

In short: know what you need, how you’ll use it, and why it’s worth betting on.

5. Cultural Mismatch with the Buyer

Deals don’t live on spreadsheets alone. Cultural fit matters—and misalignment can tank even the most financially attractive opportunities.

Some PE firms move fast and aggressively. Others are patient and hands-on. If you’re a founder who wants to stay involved, or a team that thrives on autonomy, the wrong partner can erode morale and retention before the ink dries.

This gets even more complicated in franchise systems. Your operators—the lifeblood of your business—may be spooked by change. If the buyer plans to overhaul your systems or restructure incentives without franchisee input, resistance is guaranteed.

How to avoid it: Interview your buyers. Seriously. Ask:

• How have you worked with franchisors before?
• What’s your typical involvement post-close?
• How do you engage franchisees or employees in change?
• Who will be our point of contact after the deal?

Trust your gut. The highest bidder isn’t always the best partner.

6. Tax Structure Oversights

No one wants to talk about tax. But here’s the deal: the way your company is structured can make or break your exit.

If you’re a pass-through entity (like most franchisors), you need to think about:

• How mid-year ownership changes affect tax returns
• Whether you’re optimizing for long-term capital gains
• Whether intellectual property is treated as amortizable or ordinary income
• Who controls the entity at closing—and who signs the final returns

These issues can’t be fixed on closing day. And if they’re ignored, you could walk away with significantly less than you expected.

How to avoid it: Engage tax advisors who specialize in transactions and franchising. Run models in advance. Don’t assume you’ll figure it out later. Many of the most painful outcomes we’ve seen started with, “We thought it wouldn’t be a big deal.”

7. Waiting Too Long to Get Your House in Order

This is the biggest mistake of all.

So many founders and operators wait until they’re actively marketing the business—or worse, under LOI—to get organized. At that point, it’s too late to fix the problems that really matter.

When you’re in due diligence, there’s no time to upgrade systems, find missing documents, or refile returns. Everything has to be buttoned up. If it’s not, your deal terms suffer—or you lose the buyer altogether.

How to avoid it: Treat deal prep like you would brand standards or location growth—it’s a discipline, not a project. Get your house in order before you need to.

• Start with a clean, digital data room
• Implement systems for tracking leases, franchise agreements, and contracts
• Conduct an internal health check (QoE, lease audit, financial review)
• Give yourself time to optimize—not scramble

Think of it this way: no buyer wants to pay a premium for a business they have to clean up. But many will pay more for one that runs like clockwork.

Final Thought: Don’t Just Prepare to Sell—Operate to Optimize Profitability and Efficiency

Getting your company “deal-ready” isn’t just for the sake of private equity. The same preparation applies if you’re:

• Raising debt or refinancing
• Completing a franchisee buyback
• Evaluating a joint venture
• Exploring a merger or roll-up
• Or even just operating with confidence at scale

The reality is: buyers, lenders, and partners are all looking for the same thing—clean data, confident decisions, and no surprises.

The good news? You don’t need to do it all at once. You just need to start.

Citrin Cooperman’s Franchising Industry Practice will work collaboratively with you to reach your businesses goals and provide the necessary tools for success. Please contact our co–leaders Michael Iannuzzi and Aaron Chaitovsky for information on preparing your business for an upcoming private equity transaction.