Investing a franchise is often a great opportunity, but not always. Like any business structure, some opportunities involve reliable parties, while others involve disreputable or fraudulent parties. A skilled and knowledgable franchisor may find a number of ways to hide business tactics that might make a potential investor nervous.
If you are considering a franchise opportunity, it is wise to invest your time and resources in carefully vetting the business and its place in the community. The value of a franchise rests on both the quality of its product or service and the clout of the franchise’s name. Keeping your rights and your resources secure is much easier with a clear legal strategy and detailed research within the franchise’s community.
Discovering complaints against a franchisor
The Federal Trade Commission tracks complaints against businesses, which you can obtain through a Freedom Of Information Act Request. However, it is important to note that the information that the FTC can release does not always create a complete picture.
For instance, a franchisor may alter their business’s name once a year or every six months, preventing the FTC from gathering a useful history of complaints. As you consider the specifics of your franchise opportunity, pay special attention to this type of behavior. If a franchisor chooses not to disclose a name change within the last year, or refuses to include reference material to previous iterations of the franchise, some careful research and consideration may save you from significant losses.
Obtaining information through a FOIA request is typically free for the public, but not always. All requests must be in writing, and it is wise to include a written limit to what you are willing spend if some aspect of your request does incur fees.
To get a more detailed understanding of the relationship a frnachise has with its community, it is good to speak directly with members of the community.
Make the due diligence personal
Understanding the value of your franchise opportunity requires more than simply looking at raw data. A strong franchise typically addresses a need or hole in the market of a specific community, so it is important to take the time to research the relationship that other iterations of the franchise have with their communities.
Businesses offering franchise opportunities must provide investors with contact information for at least 10 existing or prior customers nearest to you. Speaking directly with these customers is one of the few ways that you can get a strong grasp on the true nature the business. While this may not be a glamorous aspect of investment, it is one of the best tools that you have to protect yourself when considering entering into a franchise agreement.
The future benefits of a franchise opportunity are unknown, but careful research and due diligence can help you make informed decisions. As you weigh your options, always make sure to use high-quality legal resources and guidance as needed to keep your rights secure and ensure that you make sound business moves.