New Franchise Rule: More Disclosure, Same High Risks

March 3, 2008 by Cris | 0 Comments

CNNMoney:

If Beth Tomei had only known.

In November 2004, the Walnut Creek, Calif., fitness club owner signed a franchise agreement with the Butterfly Life women’s fitness company in hopes of cashing in on the company’s Curves-like business circuit training plan. Soon, however, she realized all was not right: she learned that 12 of the company’s 16 California franchises were failing or had failed, she says; that the start-up costs would be close to twice those claimed in the company’s franchise prospectus; and that the oral profitability claims she’d been given were mostly wishful thinking.
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Today, down $450,000 in savings and home equity, she is part of a group of franchisees involved in a class arbitration claim against Butterfly Life.

‘If they had been required to disclose more and do it more clearly, I think a lot of heartache could have been saved and would be saved for future franchisees,’ Tomei said. A Butterfly Life representative did not return calls for comment.

It seems that Tomei may get her wish. Since 1995, the Federal Trade Commission (FTC) has been studying ways to update the Franchise Rule – the regulations governing the sale of franchises to aspiring business owners – to make it more consistent with state regulations. On July 1, the fruit of 13 years of internal meetings, public workshops and industry comment becomes real when the new and improved Franchise Rule goes into effect.

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