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Should a prospective franchisee work with a franchise broker or consultant? I am often asked that question by prospective franchisees. Alternatively, someone will contact me and after speaking with me may decide that they want to look at other franchise opportunities. Typically, in those situations I refer the prospective franchisee to both the IFA website (www.franchise.org) and to a franchise broker or franchise consultant who does not charge the prospective franchisee.
A franchise consultant or franchise broker works with the "candidate" or prospective franchisee by performing almost a matchmaking service. A good broker learns about the prospective franchisee's financial and personal background and determines franchises that would be a good fit, both financially and personally, for the candidate. Read more »
What are the key provisions of the franchise documents that every franchisee should know? Every prospective franchisee should read through all 23 items of the franchise disclosure document (FDD), but pay particular attention to the following items:
Item 1 of the FDD discusses the background of the company, its parents and affiliates. It also is the area that discloses the competition and regulations in the industry.
Item 3 of the FDD discloses the material litigation in which the franchisor is involved. A prospective franchisee should be wary if there are many suits against the franchisor by the franchisees or many suits by the franchisor against its franchisees.
Items 5, 6 & 7 of the FDD are the financial disclosures that every prospective franchisee should read carefully, including the footnotes to each item. These items disclose the obligations of the franchisee for the upfront fees (Item 5), on-going fees (Item 6) and the likely costs the prospective franchisee can expect to open the business (Item 7 chart). Read more »
What type of due diligence, investigation or validation should a prospective franchisee perform? A prospective franchisee, someone looking to invest in a franchise, should learn as much as possible about the business and franchise opportunity prior to signing any contract or paying any money to the franchisor. First and foremost, read the 23 items of the FDD. This document is supposed to be written in "plain English" for a prospective franchisee's review. Pay particular attention to Items 5, 6 & 7, the financial disclosures. In addition, review Item 20 to learn about the system and its anticipated growth. Read more »