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Franchise Cautions: Read This Before You Buy A Franchise

By Published On: January 10th, 2013

Part 10 of the AAFD’s 10-Part Road Map to Buying a Franchise.

I’ve written a lot in the series about how to effectively research and evaluate franchise opportunities. That’s because there are a lot of bad franchises in the world that try to take advantage of their franchisees in a variety of ways. In fact, I wrote an entire book on the subject, The Franchise Fraud.

This is not to say that there aren’t great franchise opportunities available. There are! If you want to find some, I suggest looking at the AAFD’s list of accredited and endorsed franchises.

What I want to impart to all prospective franchisees is to be careful and smart when evaluating a franchise to buy. That’s what this entire blog series has been about, and it’s why I’m wrapping up the series with a list of cautionary measures you need to take before you sign your name and your professional future to a franchise agreement.

  • Do not sign any franchise agreement without having it reviewed by your franchise attorney and franchise accountant (see my blog post about building your franchisee success team).
  • Do not pay for any Franchise Disclosure Documents (FDD) that you request.
  • Understand that promises made by a franchisor may not be binding unless included in the final franchise agreement.
  • Record ALL conversations you have with each franchisor and include notes on the date, time, person you spoke with, promises that person made, the questions you asked, and the answers you received.
  • Don’t assume that just because a franchise can offer a FDD that the franchise has been reviewed and approved by the government.
  • Do not be pressured into signing an agreement. It’s in the salesperson’s interest to create a sense of urgency that may not be real. Remember, franchise brokers and those you meet at franchise tradeshows are in the business of selling franchises.
  • Talk to lots of franchisees, including those the franchisor doesn’t recommend or who have recently left the system. Reach out to franchisees in a similar geographic area to yours and some who’ve gone through a renewal cycle and have been in the system for many years. The franchisor is required to give you the names of all franchisees who have left the system in the past 3 – 5 years. Make sure you ask for them and follow up with these people!
  • Never underestimate the start-up costs of getting into the franchise. Make sure you have enough funds to carry you until the business makes a profit.
  • Don’t assume that just because a franchisor is a member of the International Franchise Association (IFA), that it is a “reputable” franchisor.
  • Consider joining a professional franchise association, such as the AAFD, which promotes fair franchising standards and helps prevent and address abuse by franchisors.
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Written by : Robert L. Purvin

Robert Purvin is the Chairman and CEO of the American Association of Franchisees and Dealers, a national non-profit trade association that is dedicated to supporting and protecting the rights of franchise owners. The AAFD's mission is to define, identify and promote Total Quality Franchising practices, and the AAFD supports is mission by: Promoting strong and effective independent franchisee associations as affiliated chapters of the AAFD. The development of the AAFD's Fair Franchising Standards, the most comprehenisve body of negotiated principles of recommended franchise practices in existence. The advocacy of fair and balanced franchise agreements and relationships that respect the legitimate business interests of both franchisors and franchisees for the good of the franchise relationship. The education of franchisees and prospective franchisees by the development and publication of the AAFD Fair Franchising Standards and the promotion of the AAFD Franchisee Bill of Rights.