Noticias de Franquicias
Noviembre 22, 2010
Franchises and potential Business Opportunities
It is very important to make a thoroughly informed decision about any franchise or business opportunity that presents itself to you. The Federal Trade Commission (FTC) regulates both and requires that sellers of franchises and business opportunities provide certain disclosures to potential buyers before they invest or become obligated in any way to the seller. Once armed with the knowledge required under the FTC Act one will have more information to make a well researched choice whether or not to pursue the business opportunity or franchise.
The U.S. Department of Commerce publishes “The Franchise Opportunity Handbook” each year so one can research many current opportunities easily. This can help you see similar franchises or business opportunities that are available. It does pay to shop around and get disclosure documents from those that interest you, since each seller may have different benefits and risks.
The FTC Act requires that all business opportunity and franchise sellers provide in depth disclosures at a minimum of ten days prior to committing the buyer or taking any money from them for the purchase.
The seller is obligated to provide the potential buyer with a listing of ten previous owners that live closest to them. This list must include their name, address, and phone number in which to contact them. The seller must provide the prospective buyer with their fully audited financial statements. The seller must define the background of the key executives of the company as well as their experience. The costs of both starting the business and maintaining it must be disclosed in writing by the seller. Additionally, both parties’ responsibilities to each other once the potential buyer has invested must fully disclosed. The seller should provide the potential investor with a written disclosure documenting all of these key facts. The potential buyer should keep these documents for their records at a minimum until they are no longer interested in pursuing this opportunity or if they do invest indefinitely. This document can prove helpful when comparing different opportunities to each other. It is a red flag if they do not provide a disclosure document to the potential buyer.
Before a potential buyer obligates themselves in any way to a seller of a franchise or business opportunity they have much due diligence to perform. It is very important to read through the disclosure documents and contract before signing. A legal adviser, accountant, or business adviser should also review them prior to investing. A combination of the three would provide you with the most information and opinions. The expense of the services to review the documents and contracts can pay big dividends.
Do not rely solely on the owners listed in the disclosure documents by the seller. They may only list those they know will give a favorable appraisal. It is of utmost importance to go to as many current and previous owners as possible. Find out what their experience has been. It is helpful to talk to them in person if possible, since they may speak more candidly this way. Be wary of any experiences that do not match up with what you have been promised.
If the seller makes income potential claims ask for it in writing and ask how they determined the number. The FTC requires that a seller making potential income representations provide you with a written basis for their claims. They are also required to tell the potential buyer in writing the percentage and number of owners who do as well as they claim is possible.
Pay very close attention to the sales presentation and make notes. Be cautious of any high pressure tactics and claims of easy money. Any promises made by the seller should be made in writing and written into the contract. If something is promised but the contract states something different or omits the topic entirely, by law the contract takes precedence. If the seller is unwilling to put their promises in writing that is a red flag.
You can call the Federal Trade Commission or visit their website to get more information about franchises and business opportunities. The FTC is also the place to file a complaint about a particular franchise or business opportunity. You can contact them to see if they have any complaints about the ones you are interested in.
The time one spends making a carefully researched decision can save a lot of headaches (and money) down the road.
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