Churning

Churning is a red flag in franchising where a franchisor profits by collecting new franchise fees each time a struggling unit changes hands, rather than addressing the underlying problems causing failure. You can identify potential churning by examining Item 20 of the FDD, which discloses franchisee turnover data including terminations, non-renewals, and transfers. High turnover rates relative to the system size warrant further investigation during due diligence.