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What To Consider Before Buying A Franchise
Here are some useful tips on what to consider before buying a franchise. Before investing in any system, be sure to get a copy of the franchisor's disclosure document. Sometimes this document is called a Offering Circular. You should read the 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 the executives of the system and describes their prior experience. Consider not only their general business background, but their experience in managing a system. Also consider how long they have been with the company. Investing with an inexperienced franchisor may be riskier than investing with an experienced one. Litigation History: The disclosure document helps you assess the background of the franchisor and its executives by requiring the disclosure of prior litigation. The disclosure document tells you if the franchisor, or any of its executive officers, has been convicted of crimes involving, for example, fraud. Bankruptcy: The disclosure document tells you if the franchisor or any of its executives have recently been involved in a bankruptcy. This will help you to assess the franchisor's financial stability. Costs: The disclosure document tells you the costs involved to start one of the company's franchises. It will describe any initial deposit or 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 the franchisor limits the supplier of goods from whom you may purchase, the goods or services you may offer for sale, the customers to whom you can offer goods or services or the territory in which you can sell goods or services. Terminations: The disclosure document tells you the conditions under which the franchisor may terminate your and your obligations to the franchisor after
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