Monthly Archives: October 2018

What Does it Really Mean to Be Named a “Top Franchise”?

Oct 31, 2018 - Blog by |

Franchisors love rankings. Visit any well-known franchisor’s website, and you are bound to see a laundry list of rankings purporting to provide third-party validation of the franchisor’s superiority in its niche, if not in the franchise industry as a whole. Similarly, a Google search for “franchise rankings” provides links to web pages and articles with titles like: Top 100 Global Franchises 2018 Franchise 500 Ranking Top 100 Franchises – Rankings of Global Franchises 2018 Rankings of the Best Franchises America’s Best and Worst Franchises to Buy Top 50 Franchises in the World Top 100 Franchises of 2018 As a prospective franchisee, how much stock, if any, should you put in a particular opportunity’s ranking as a “top franchise”? Understanding Franchise Rankings When considering what value to place on a ranking, it is always important to consider the source. As a general rule, legitimate media outlets (such as Forbes.com and Entrepreneur.com) will be more reliable than websites that exist solely to sell advertising (often for their own “top-ranked” franchise opportunities). A site that seeks to have some legitimacy behind its rankings should disclose the source of its data and its methodology as well. For example, in compiling its list of “America’s Best and Worst Franchises to Buy,” Forbes.com relied on five years’ worth of statistical data compiled by FRANdata examining system sustainability, system demand, value for investment, franchisor support and franchisor stability. On the other hand, the Forbes.com list also relies on data that are a minimum of two years old, […]

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Do Franchise Scams Still Exist?

Oct 17, 2018 - Blog by |

Although scams exist in virtually all industries, in today’s world, franchising is arguably one of the exceptions. If you understand the basics of the franchise model, and if you do your due diligence before paying an initial franchise fee, the truth of the matter is that you should be able to spot and avoid any scams pretty easily. For this reason, franchise scams have largely gone by the wayside, and those that still exist barely resemble legitimate franchise opportunities. Of course, this does not mean that your success as a franchisee is guaranteed. There is a big difference between a scam and an unprofitable franchise. Franchisees fail, and even entire franchise systems can go off of the rails, but most franchisees who lose their investments will need to sue for reasons other than being sold on a fraudulent scam. Making Informed Decisions as a Prospective Franchisee Buying a franchise is a complex investment, and it needs to be treated accordingly. This starts with understanding franchisors’ disclosure obligations. Under the Federal Trade Commission (FTC) Franchise Rule, all franchisors are required to you with a Franchise Disclosure Document (FDD), “14 calendar-days before you sign a binding agreement with, or make a payment to, the franchisor or an affiliate in connection with the proposed franchise sale.” If you are being asked to sign an agreement or pay money and you have not been provided with an FDD, then you are not being offered a legitimate franchise. But, once again, in today’s world this […]

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Is Franchise Regulation a Myth?

Oct 3, 2018 - Blog by |

Blue MauMau recently published an article entitled, “Shattering the Myth: The Franchise Industry Is Heavily Regulated?!?” It is a click-worthy headline, no doubt, but what about its implications: Is franchise regulation really a myth? The “Myth” of Franchise Regulation The article goes on to state some indisputable, and relevant, facts about franchise regulation. For example, while the franchise industry falls within the oversight of the Federal Trade Commission (FTC), the FTC does not actually review franchisors’ Franchise Disclosure Documents (FDDs). Additionally, although the FTC’s enforcement efforts targeting franchisors are minimal, the FTC’s Franchise Rule does not provide franchisees with a private right of action. In the words of the article’s author, Keith Miller, “Who would consider a filled-out document, which is actually not reviewed by any regulatory agency, to be a heavily regulated document?” The article also goes on to note that there is no federal franchise “relationship” law, and less than half of all states have these laws in place. However, the article omits any reference to state franchise “disclosure” laws, of which there are several, and many of which do require review of franchisors’ FDDs. There are some other issues with the article as well. For example, the article asks rhetorically, “[W]hy do the vast majority of franchise agreements require the franchisee sign it as an individual and not as a business?” While this is not directly relevant to the issue of regulation, it is also not entirely accurate. Legitimate franchisors today universally allow franchisees to form business […]

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