Buying a franchise is a significant business decision. The U.S. Federal Trade Commission (FTC) provides information for consumers who are considering buying a franchise. Among other tips, the FTC recommends consulting the following sources before you buy:
Federal, state, and local government agencies.
Other than the Federal Trade Commission and the Securities and Exchange Commission, states have agencies and licensing bodies that oversee franchises. Some localities also have rules that affect franchises, such as zoning laws and tax requirements. These agencies may be able to provide information about the franchisor, and they can also provide information about any legal requirements you may be required to meet as the franchisee. Your lawyer can also help you get this information and understand how it applies to your specific franchise purchase.
Banks and other financial institutions.
Your bank may be able to provide information including financial profiles of franchisors or sales and profit information. Remember to read this information with a critical eye because it was provided to the bank in the interest of getting a loan. Information may look more optimistic than the franchisor’s performance genuinely supports. Talk to your accountant for a second opinion.
An accountant with franchise experience.
An accountant who understands franchises can help you decipher the franchisor’s business statement, assess earnings projections, and choose a franchise system that will support your goals while still working within your resources. Your accountant can give you advice on whether the franchise is a wise business decision based on these numbers.
An experienced attorney.
Buying a franchise involves significant paperwork, including many contracts and agreements you’ll need to sign. Your experienced franchise lawyer can help you understand these agreements and can help ensure that you aren’t signing an illegal, unethical, or impossible agreement.