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Disclaimer
A Consumer Guide to Buying a Franchise
- Current and Former Franchisees
- The disclosure document provides important information about current
and former franchisees. Determine how many franchises are currently
operating. A large number of franchisees in your area may mean increased
competition. Pay attention to the number of terminated franchisees. A
large number of terminated, cancelled, or non-renewed franchises may
indicate problems. Be aware that some companies may try to conceal the
number of failed franchisees by repurchasing failed outlets and then
listing them as company-owned outlets.
If you buy an existing outlet, ask the franchisor how many owners operated that outlet and over what period of time. A number of different owners over a short period of time may indicate that the location is not a profitable one, or that the franchisor has not supported that outlet with promised services.
The disclosure document gives you the names and addresses of current franchisees and franchisees who have left the system within the last year. Speaking with current and former franchisees is probably the most reliable way to verify the franchisor's claims. Visit or phone as many of the current and former franchisees as possible. Ask them about their experiences. See for yourself the volume and type of business being done.
The following checklist will help you ask current and former franchisees such questions as:
- How long has the franchisee operated the franchise?
- Where is the franchise located?
- What was their total investment?
- Were there any hidden or unexpected costs?
- How long did it take them to cover operating costs and earn a reasonable income?
- Are they satisfied with the cost, delivery, and quality of the goods or services sold?
- What were their backgrounds prior to becoming a franchisee?
- Was the franchisor's training adequate?
- What ongoing assistance does the franchisor provide?
- Are they satisfied with the franchisor's advertising program?
- Does the franchisor fullfill its contractual obligations?
- Would the franchisee invest in another outlet?
- Would the franchisee recommend the investment to someone with your goals, income requirements, and background?
Be aware that some franchisors may give you a separate reference list of selected franchisees to contact. Be careful. Those on the list may be individuals who are paid by the franchisor to give a good opinion of the company.
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_________________________________ Table of Contents The Benefits and
Responsibilities Before Selecting
a Your Ability to Training
and Support Services Investigating
Franchise Terminations
Training Current and
Former
Source: Federal Trade Commission
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