International Law

Before Buying a Franchise, Don't Trust... Verify

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Sean Kelly, writing at All Business, has a couple of good ideas about franchise pre-purchase investigations.

Someone asked Sean about a concept and claimed that the franchise business model was too good to fail.

Here is Sean's response:

"There's NO concept that's "too good to fail."

There's no such thing as a concept that's "too good to fail." 

Why?   

Because there's much more to achieving success than a good concept.   

Many prospective franchisees miss this point, thinking that a great concept assures success. Successful franchisees recognize that the franchise concept and program are a blueprint and a set of tools.

The franchisee must do the building. It's up to the franchise owner to sign up enough members and keep them coming back month after month. A good franchisor will make sure a prospect understands that before they take their check. 

This is a useful concept to keep in mind. But how does one go about verifying the franchisor's claims? You have to start with reading the disclosure document carefully, without any time pressure, and long before you meet the franchisor at discovery day.

One useful trick is to review what the franchisor is going to ask you to sign at the closing, apart from the usual franchise documents. Many franchisors are asking their prospects to sign off on a series of questions about the franchisees pre-purchase investigation. You would be very wise to review those questions and be prepared to answer these questions.

Full post as published by Misleading Advertising Law on September 30, 2008 (boomark / email).