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What Things Should I Do Before Buying a Franchise?

A:

Conduct due diligence (research all available information on the franchise system) before purchasing any franchise. You should obtain a copy of the franchisor’s disclosure document. The FDD describes key provisions of the franchise agreement and also provides crucial information about the franchisor. Review it with an eye to these points:

• Compare franchising opportunities within the industry you are interested in to determine which franchise is best suited for you and which franchise may be the most successful. Once you have chosen to purchase a particular franchise, speak with as many franchisees in that system as possible, including franchisees recommended to you by the franchisor as well as those that were not.

• Is the FDD current? A FDD expires after a year. You should insist upon seeing the currently registered version. If it is close to a year old, make certain that a newer version has not already been written or submitted to the governing agency for approval.

• Study the audited financial statements, particularly the most recent one. By studying the financial statements, you should be able to determine how successful the franchisor is and how successful its existing franchisees are. Question any aspect of the statements that aren’t clear to you. Ask your accountant to review them and provide feedback to you.

• Visit the franchisor’s headquarters. Do they appear to have the resources that are needed? Do their personnel appear to be competent?

• Prepare a business plan. Be as realistic as possible with your projections. Get actual numbers whenever possible. Ask your accountant to review the plan and provide feedback.

• Check references. Phone or visit both current and prior franchise owners. Ask probing questions.

If you are comfortable with all of your fact-finding, consult a reputable franchise lawyer to assist you in negotiating your franchise purchase.

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