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Educational Consumer Tips

Franchise, Selecting A

Author: Better Business Bureau
Published:

Before selecting a franchise, investigate the offer carefully. To protect yourself from unscrupulous salespersons, you should be aware of your rights. The Federal Trade Commission requires most franchise promoters to provide prospective buyers with detailed disclosure documents at the time of the offer. Such documents would contain background and experience of key executives; fees required to start up and maintain the business; names, addresses, and telephone numbers of other purchasers; a fully audited financial statement; and information about the relationship between the seller and buyer once the contract is signed.

To protect yourself, be aware of several warning signs: high pressure sales tactics where the promoter does not want you to take time to investigate the offer; representations of extra- ordinary profits with very little risk; excessively high start-up fees; lack of communication or evasive answers about the plan; offers that seem to give away secret plans for success, available only to a limited number of respondents; or offers which include loans to finance the initial investment.

In addition, make an in-depth investigation into the following:
- Make sure you are compatible with the type of business and
that the business fits with your lifestyle;
- Talk to people already in the business;
- Investigate the financial health and history of the company;
- Investigate background and experience of the company's
officers;
- Determine the source of the majority of the promoter's earnings (goods and services or franchise sales);
- Evaluate the value and appeal of the product or services;
- Determine the type of training and support provided;
- Evaluate the location selection process, since location is one
of the most important factors in the success of any new
business.

Finally, before you sign a franchise contract, discuss it with your attorney to be sure you fully understand the commitment you are about to make.

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