Here are some useful tips on what to consider before buying a franchise. Before investing in any franchise system, be sure to get a copy of
franchisor's disclosure document. Sometimes this document is called a Franchise Offering Circular. You should read entire disclosure document. The following outline will help you to understand key provisions of typical disclosure documents. Get a clarification or answer to your concerns before you invest.
Business Background: The disclosure document identifies executives of franchise system and describes their prior experience. Consider not only their general business background, but their experience in managing a franchise system. Also consider how long they have been with company. Investing with an inexperienced franchisor may be riskier than investing with an experienced one.
Litigation History: The disclosure document helps you assess background of franchisor and its executives by requiring disclosure of prior litigation. The disclosure document tells you if franchisor, or any of its executive officers, has been convicted of crimes involving, for example, fraud.
Bankruptcy: The disclosure document tells you if franchisor or any of its executives have recently been involved in a bankruptcy. This will help you to assess franchisor's financial stability.
Costs: The disclosure document tells you costs involved to start one of company's franchises. It will describe any initial deposit or franchise fee, which may be non-refundable, and costs for initial inventory, signs, equipment, leases, or rentals.
Restrictions: Your franchisor may restrict how you operate your outlet. The disclosure document tells you if franchisor limits supplier of goods from whom you may purchase, goods or services you may offer for sale, customers to whom you can offer goods or services or territory in which you can sell goods or services.
Terminations: The disclosure document tells you conditions under which franchisor may terminate your franchise and your obligations to franchisor after termination. It also tells you conditions under which you can renew, sell, or assign your franchise to other parties.
