Due to federal and state law, there are certain facts and parts of a franchise system's regulatory life which it is not required to disclose - in writing. However, by meeting with a franchisor and asking the necessary questions, a franchisee can get all the information they need, regardless of how awkward making these inquiries may be, AllBusiness writes.
There are three "awkward" questions a franchisee should ensure get answered. The first thing a buyer should ask about is the average profitability of a system's units. In an FDD, a franchisor may choose not to make unit performance public information. Additionally, the different standards and demands of various states may prompt a franchisor to include certain regions while omitting others, according to the Web site.
If not disclosed in item 19 of the FDD, franchisors are not compelled by law to answer that question. Rather, they may just direct potential buyers to speak with existing franchisees, who are usually more than able to supply the numbers for their unit.
The second piece of information potential franchisees should secure is whether any franchise registration state has rejected the company's franchise offering because it felt the system posed a risk to investors. While this may not affect certain states, it is still is a good indicator of the system's overall health. Additionally, there are no legal reasons why a franchisor cannot supply this information, so buyers should not accept any other answers. If the franchise has been deemed a risk by other states, buyers should either look elsewhere or inquire about the possibility of delaying franchise fees until a unit is open for business.
In item 20, an FDD will provide a list of statistics on which franchise were "terminated," "not renewed" or "reacquired by franchisor." However, this information fails to provide any clues or details behind the reasons for owners ending or selling their franchise agreement. Potential buyers must ask then how many of the franchises that are listed as leaving the the system were actually failed units. Many of these units could have been sold for personal reasons such as retirement, divorce or a transfer. But if a buyer doesn't ask, he or she will never know.
Franchisors are required by law to provide interested buyers with a Franchise Disclosure Document. These filings can be obtained through a state office or a franchisor. A number of private companies such as Frandata, Franchise-Insider and Franchise Help will supply these documents for a fee.
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