Thinking of a franchise or business opportunity may sound
appealing, especially if you have limited resources or business
experience. However, you could lose your money if you don't
investigate a business carefully enough before you commit. By
obtaining a copy of the franchisors Franchise Disclosure Document
will give you specific information to help you make a well informed
You can use the disclosure document to compare a particular
franchise with others you may be considering or simply for
To help you make your decisions, you should interview current
owners in person if possible. (They should be listed in the
disclosure document.). Don't rely on a list of references selected
by the company because it may contain biased participants.
Ask owners and operators how the information in the disclosure
document matches their experiences with the company.
Investigate claims about your potential earnings. Some companies
may claim that you will earn a certain income or that existing
franchisees or business buyers earn a specific dollar amount.
Companies making earnings representations must provide you with the
evidence for their claims. Be suspicious of any company that does
not show you in writing how it computed its earnings.
Franchisors also must tell you in writing the number and
percentage of owners who have done as well as they claim you will.
Keep in mind that sales claims about successful areas of business
"Be a part of our $4 billion industry," for example — may have no
bearing on your likelihood of success. Also, recognize that once
you buy the business, you may be competing with franchise owners or
independent business people with more experience.
Shop around. and compare business opportunities. Some companies
may offer benefits not available from the first company you
considered. The CFA publishes an annual directory that describes
companies that offer franchises. Contact those that interest you.
Request their disclosure documents and compare their
Listen carefully to the sales presentation. " prices will go up
tomorrow," or "another buyer wants this deal," these sales
tactics should signal caution. A franchisor with a good offer
doesn't use high-pressure tactics. Under certain disclosure
requirements you may be required to wait a certain amount of
days before signing any binding agreements or paying any
money. Be wary if the salesperson makes it sound easy. The thought
of "easy money" may be appealing, but success generally requires
Get the franchisors promises in writing. Any oral promises you
get from a salesperson should be written into the contract you
sign. If the contract is ambiguous or says something different,
it's the contract that counts.
Seek professional advice. Ask a lawyer, accountant, or business advisor to read the disclosure documents and proposed franchise agreement before you sign. The money and time you spend on research and professional assistance; is money well spent.