When you’re considering purchasing a business opportunity or franchise, make sure that you talk to enough other people involved with the business. Don’t just talk to the references the seller gives — they’re most likely very biased. Google the opportunity and find others involved, and (maybe more importantly) no longer involved to get a better idea.
The section of the disclosure information on “Past, Current and Future Franchisees” is a valuable starting point for locating franchisees. It is imperative to discuss any concerns you may have with existing franchisees. If the franchisor gives you a tour that includes two or three franchisees, get back to them later and ask any questions that could have been confrontational or embarrassing if asked in front of the franchisor. Another important factor here is to find out whether the franchisor has introduced you to specific franchisees compensated for their help to solicit new franchisees. Ask them directly, then follow up with letter stating their answers to your questions. It is surprising how an inaccurate response might change once it is in writing.Other than the franchisees introduced to you by the franchisor, to get a true picture, you can survey others listed in the disclosure document not versed in soliciting prospective franchisees. Find out from them if the franchisor has a reputation for honesty and fair dealing. It is of paramount importance to contact existing franchisees of the franchisor to verify their experience of the accuracy of previous disclosure documents. Also, ask their opinions of the accuracy and completeness of the current one. Further, you can solicit their help in verifying any other information not provided in the disclosure document.
When interviewing other franchisees, try to cover a large cross section of franchisees. Seek answers from those that:
- Are in different locations,
- Have one franchise,
- Have multiple franchises,
- Have been in business a long time,
- Are still new,
- Are successful, and
- Are not doing so well.
For the latter, try to determine the reasons. Specifically, ask the franchisees if they feel that the franchisor exercises too much control, or not enough. Is the franchisor always willing to help? Has the franchisor held up its end of the obligations regarding ongoing support assistance and training?
Information from franchisees about their first year in business and their experience with the franchisor can be extremely enlightening. Under the FTC requirement, while the offering circular must disclose a list of existing franchisees, this record does not have to be complete. If you find the list provided to you is incomplete, ask the franchisor for a complete registry.
No comments yet.