How to Properly Assess a Franchise Opportunity

Investing in a franchise is attractive for many people seeking to own their own business since you are purchasing a proven business model and get assistance from the franchisor in marketing and other important business operations.

However, before you invest, there are steps you should take on your own to assess a particular franchise opportunity:

Put the Disclosure Document to Work for You – Once you’ve received the disclosure document from the franchisor, read through it and follow up with all the contacts and references that have been provided. It’s best to interview franchisees in person. Ask about their experiences and compare their responses to the statements in the disclosure document.

Do the Potential Earnings Figures Stack Up? – Investigate whether claims about your potential earnings are genuine. You can do this by asking for a copy of the basis for these claims in writing. Again, this is something you can also gauge when you talk to existing franchisees.

Check out Success Stories – The franchisor must tell you (in writing) the number and percentage of owners who been as successful as they claim you will be.

Compare Opportunities – As with all business ventures, shop around. A franchise consultant can connect you with available franchise opportunities but you may want to check out online resources that list companies that provide investment opportunities.

Don’t Give in to Sales Pressure – The FTC requires that a seller must wait at least 10 business days after giving you the required documents before accepting payment or a signed agreement.

Compare the Contract to the Verbal Sales Pitch – Don’t sign any contract that doesn’t mirror the promises that have been made to you at the pre-sale pitch.

Employ Professional Help – An attorney – preferably one experienced in franchise law – can help you evaluate the franchise package and tax considerations. You might even consider using an accountant to determine the full costs of purchasing and operating the business as well as assess your potential profit.

Romy Jurado is one of the founders of Jurado & Farshchian, P.L. a business, real estate and immigration law firm. She focuses her practice on business law, including corporate and transactional matters with an emphasis on corporate formation, stock and asset sales, contract drafting, and business immigration. Romy is originally from Peru and moved to the USA with the dream of becoming an attorney and entrepreneur. Romy is actively involved in the community through her work as a Score certified mentor, and speaking at conferences to entrepreneurs and small business owners.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.

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