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Lanard Law Blog
Existing Franchisees Can Be A Valuable Resource To A Prospective Franchisee
Existing and former franchisees of a system can be a valuable resource and an important part of the due diligence or validation for anyone looking to buy a franchise. Before you sign a franchise agreement or pay any monies for a franchise, make sure you have spoken to as many of the existing and former franchisees as you can and ask them what they like and dislike about the support and training they receive. Both existing and former franchisees are listed as Exhibits to Item 20 of the Franchise Disclosure Document (FDD). If there are 500 franchisees in a system you are considering, I would speak to at least 50 of them around the country and all of the former franchisees you can reach.
I gave this advice to a prospective franchisee of a long-existing franchise system. This prospective franchisee had thought of buying a franchise in this system since she was a young girl. When she took my advice and called franchisees and asked them what they liked and disliked about the franchise system, she received an earful of negative comments. Disappointed by this information, but informed, she wisely decided to walk away from that opportunity and reconsider her options. It is likely that spending a few hours speaking to franchisees and learning about the system saved her tens of thousands of dollars and a lot of headaches in the long run.
Former franchisees may be difficult to reach since the contact information provided in the FDD is often their former store or business address; but to the extent you can speak with them, they are a valuable resource. Regardless of whether they have left the franchise system due to personal or health reasons, retirement or dissatisfaction, their information and perspective can be very useful.
The step of speaking with former and existing franchisees is just one of several types of due diligence or validation that should be performed before you invest in a franchise opportunity. Of course, the most important step is to have a thorough review of the franchise documents by an experienced franchise attorney before you sign them.