Franchise information regulated by the FTC
I understand that all franchise information must meet certain basic federal standards. If that’s true, can I expect all franchises to essentially be equal because of those requirements?
Using franchise information regulated by the FTC to analyze a franchise
The bottom line answer to your question is “NO.” However, we wish it were true, because the franchise industry would be a heck of a lot easier to navigate.
We think that many people share your thoughts because public relations messages sent out by franchisors and industry associations have led to a greater comfort level with a franchise than other forms of entrepreneurship. Such messages can lead us to believe that franchises are an overall “safe” investment, but the fact is that standards, quality and equality are all very different issues when you begin analyzing franchise information and the myriad opportunities that are available.
Franchise information regulated by the FTC is presented in a particular format described by the Federal Trade Commission. Today, in the process of buying a franchise, a franchisor must provide the prospective franchisee with both an FDD (franchise disclosure documents) and an FA (franchise agreement) with required information across many subjects.
However, while each FDD will include the same topics and format, the information will necessarily be different from franchises to franchise. In addition, while certain franchise information must be disclosed to prospective buyers, it is only a gateway to analyzing various investments. The unfortunate truth is that most buyers never complete any form of serious due diligence. We are constantly amazed by the large number of people who invest their time and money in a business and only begin to find out the truth after making the purchase.
While no one can accurately state the number of franchised offerings available in North America, the estimated range is 3,000+ on any given day. Rest assured that everyone of those franchises has some twist or difference in their documents that differentiate them from another.
Remember: Any business can be franchised, but very few should be franchised. The reasons why certain offerings are poor investments are many, and unfortunately the buyer is often in the worst position to discern between good and bad. Why is that? Because buyers are generally seeking a business for the first time and they have little experience in studying the kinds of issues that are true red flags and warning signs. When buying a franchise, you must conduct meaningful pre-purchase due diligence to afford yourself the best chances for success. Proper due diligence is a necessity. Involve the best help you can find when deciding on a franchise purchase.
By the way, many franchise brokers label themselves ‘franchise consultants’ offering free services. They are attempting to sell you a franchise they represent on a commissioned basis. We have never understood how a commissioned salesperson could possibly have everyone’s best interests in common, especially the best interests of the buyer. That is not to say that some of those offerings are not quality investments. We simply stress that a buyer should understand how the cash is flowing.
In a nutshell, be careful, ask lots of questions, read our comprehensive franchise articles, and don’t be “sold” anything. Rather, choose what seems to be the best, most logical opportunity for you and your pocketbook.