Franchisees Proceed with Caution

Posted at March 30, 2007

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Before signing on the dotted line be sure your due diligence is complete

The items that they should review include:

  1. That the Uniform Franchise Offering Circular (UFOC) provides the required disclosure including format and content and complies with FTC regulations.
  2. If the Franchisor is selling from or into a franchise registration state that it is registered or has filed in order to offer franchises.
  3. That key commitments or promises made by the franchisor are reflected in the franchise agreement. Specific sections, to include Franchisor Obligations, should include these items.
  4. That the franchise agreement does not contain any onerous provisions for the franchisee. An example would be a non-compete provision that exceeds franchisee obligations that have been struck down by the courts.
  5. The financial statements of the franchisor demonstrate the ability to service and support its franchisees.
  6. Any negotiated items between the franchisee and Franchisor are properly documented.

In today’s world of virtually unlimited information prospective franchisees need to access competent franchise advice. Performing a complete and thorough due diligence on the franchise opportunity and franchisor is the most effective way to protect your investment and minimize your risks.

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