As a prospective franchisee, you need to know that you are making sound decisions based on all pertinent information. You need to feel confident in your buying decision, and you need to go into your franchise opportunity with your eyes wide open.
What Your Franchisor Doesn’t Want You To Know
But, some franchisors won’t tell you everything you need to know. The reason is simple: There are some things they don’t want you to know when evaluating their brands and systems. For example, here are seven facts your franchisor (probably) won’t tell you:
1. You Can’t Rely On Anything Outside of Your Franchise Agreement
To be fair, as you go through the buying process, your franchisor will provide you with a lot of information. You will receive sales materials and a copy of the franchisor’s Franchise Disclosure Document (FDD), and the franchisor’s representatives will be happy to speak with you over the phone or in person.
But, what the franchisor’s representatives probably won’t tell you is that your ability to rely on these sources of information is limited. This is because virtually all franchise agreements contain what is known as an “Integration” clause. By agreeing to this clause, you acknowledge that you are not relying on any information other than what is specifically stated in the franchise agreement. While there are some exceptions for the FDD, generally speaking, nothing your franchisor tells you outside of the franchise agreement is binding.
2. You Can Often Find a Lot of Unbiased Information Online
When evaluating a franchise opportunity, it is important not to rely solely on the information you receive from the franchisor. You should look to other sources of information as well—and this includes going online.
It is often possible to find a significant amount of unbiased information online. Current and former franchisees will post information in forums and on social media, and if the franchisor has received any unfavorable press, you should be able to find it. Remember, franchisors will want you to buy if you are a strong candidate, and they won’t necessarily share information that is likely to make you rethink your decision to consider their opportunity. With this in mind, it is up to you to make sure you explore all relevant sources of information.
3. Online Franchise Reviews and Ratings Are Often Paid Advertisements
While you can often find unbiased information online, it is important not to rely too heavily on online franchise reviews and rankings. In many cases, franchisors pay for their inclusion, and their reviews and rankings aren’t necessarily indicative of the true quality of the franchise system. In effect, these reviews and rankings are nothing more than paid advertisements.
4. Many Current and Former Franchisees Will Be Happy to Speak with You
When selling franchises, franchisors want to control the narrative. If you ask to speak with some franchisees, the franchisor will most likely direct you to some pre-selected operators who have nothing but good things to say about their experience.
But, many other current and former franchisees will be happy to speak with you, and some of these individuals may have very different perspectives. The FDD should include an exhibit that lists current and former franchisees’ contact information. You should feel free to ask any questions you want to ask, and you will most likely find that current and former franchisees alike are more than happy to tell you what they wished they knew before they signed their franchise agreements.
5. You Can (and Should) Obtain FDDs from Multiple Franchisors
When buying a franchise, it is important to shop around. Buying a franchise is a major investment, and you need to make sure you have thoroughly considered your options. But, some franchisors may tell you that they only give FDDs to “serious” prospects, and they don’t want to give you an FDD unless you have already written off their competitors.
This is a potential red flag. You can (and should) compare multiple franchise opportunities, and the easiest way to do this is by obtaining multiple FDDs. If a franchisor tries to steer you away from conducting a comparative analysis, you should question why this is the case. It may simply be a sales tactic, but it could also be an attempt to prevent you from discovering that the franchisor’s competitors have better offerings.
6. There Are Other Ways to Find Information About Competing Franchise Opportunities
Even if you don’t obtain FDDs from multiple franchisors, there are other ways to find information about competing franchise opportunities. For example, when conducting your franchise business review, your lawyer may be able to obtain information about other franchisors’ offerings for you. Your lawyer may also be able to provide insights based on his or her experience evaluating similar franchise opportunities for other clients.
7. The Franchise Agreement is Negotiable
Franchisors don’t want their franchisees to negotiate. Your franchisor’s salesperson might even tell you that most of their franchisees sign the franchise agreement “as is.” While this may or may not be true, it is irrelevant to your decision to negotiate reasonable terms to protect your legal rights.
Additionally, while franchisors don’t want to negotiate, they will generally be willing to negotiate with qualified franchise candidates. Franchisors know that their franchise agreements are heavily one-sided, and most good franchisors will be willing to consider reasonable concessions. From securing reasonable protections at the time of renewal to clarifying your territory rights, there are a variety of issues you may need to address in order to protect your investment and your rights as a franchisee.
Considering a Franchise? Schedule a Free Consultation with Attorney Jeffrey M. Goldstein
Attorney Jeffrey M. Goldstein helps prospective franchisees make informed buying decisions. If you are considering a franchise, we encourage you to inquire about our fixed-fee franchise business review programs. To discuss your options with Mr. Goldstein in a free and confidential consultation, give us a call at 202-293-3947 or tell us how we can reach you online today.
