Information to Secure from a Franchisor
Here's a helpful checklist for investigating franchise opportunities.
- Is the franchisor a one-person company? or
Is the franchisor a corporation with an experienced management that is well trained?
- Is the franchisor offering you an exclusive territory for the length of the franchise? or
Can the franchisor sell a second or third franchise in your market area?
- Do you have the right of first refusal to adjacent areas?
- Will the franchisor sublet space to you? or
Will he or she assist you in finding a location for your franchise operation?
- Does the franchisor provide financing? If so, what are the terms?
- Does the franchisor require any fees -- other than those described in the offering circular -- from the franchisee? If so, what are they?
- Has the franchisor given you information regarding actual, average, or forecasted sales?
- Has the franchisor given you information regarding actual, average, or forecasted profits?
- Has the franchisor given you information regarding actual, average, or forecasted earnings?
What information have you received?
- Will the franchisor provide you with the success rates of existing franchisees?
Will the franchisor provide you with their names and locations?
- Are there any restrictions on what items you may sell? If so, what are they?
- Does your prospective franchisor allow variances in the contracts of some of his or her other franchisees? What is the nature of the variances?
- In the event you sell your franchise back to your franchisor under the right of first refusal, will you be compensated for the goodwill you have built into the business?
- Does the franchisor have any federally registered trademarks, service marks, trade names, logotypes, and/or symbols?
- Are you, as a franchisee, entitled to use them without reservation? or
Are there restrictions, exceptions, or conditions? If so, what are they?
- Does the franchisor have existing patents and copyrights on equipment you will use or items you will sell?
- Does the franchisor have endorsement agreements with any public figures for advertising purposes? If so, what are the terms?
- Has the franchisor investigated you carefully enough to assure him or herself that you can successfully operate the franchise at a profit both to him or her and to you?
- Has the franchisor complied with FTC and state disclosure laws?
- Does the franchisor have a reputation for honesty and fair dealing among the local firms holding his or her franchise?
- How many years has the firm offering you a franchise been in operation?
- Describe the franchise area offered you.
- What is the total investment the franchisor requires from the franchisee?
- How does the franchisor use the initial franchise fees?
- What is the extent of the training the franchisor will provide for you?
- What are your obligations for purchasing or leasing goods or services from the franchisor or other designated sources?
- What are your obligations in relation to purchasing or leasing goods or services in accordance with the franchisor's specifications?
- What are the terms of your agreement regarding termination, modification, and renewal conditions of the franchise agreement?
- Under what circumstances can you terminate the franchise agreement?
- If you decide to cancel the franchise agreement, what will it cost you?
- What is the background experience and achievement records of key personnel (their "track records")?
- How successful is the franchise operation? (Use Dun & Bradstreet reports or magazine articles to supplement information the franchisor gives you.)
- What is the franchisor's experience in relation to past litigation or prior bankruptcies?
- What is the quality of the financial statements the franchisor provides you?
- Exactly what can the franchisor do for you that you cannot do for yourself?
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