Last month, we published an article outlining seven reasons franchisees should be cautious about using artificial intelligence (AI) when researching franchise opportunities. In that article, franchise attorney Jeffrey M. Goldstein highlighted some of the key pitfalls of using AI for research purposes, particularly when researching anything with significant financial or legal implications (or both).
But while there are several important reasons to be cautious about using AI as a prospective franchisee, platforms like ChatGPT, Gemini, and Perplexity can be useful in certain respects. As discussed below, the key is to understand their limitations—and to use these kinds of platforms as tools for conducting your research rather than relying on them to do your research for you.
7 Ways Prospective Franchisees Can Use AI When Researching Franchise Opportunities
So, how can you use AI when you’re buying a franchise? Here are seven ways prospective franchisees can use AI when researching franchise opportunities:
1. Finding Resources You Can Use During Your Due Diligence
As we said above, the key is to remember that AI is a tool for research rather than a substitute for it. You should not enter a prompt into an AI platform and then consider your research done.
However, AI platforms can be useful tools for finding resources that you can use during your due diligence. For example, rather than relying on an AI summary (which, as we discussed in our previous article, can be unreliable for various reasons), you can click through to the original sources the platform used. Of course, you will need to assess these sources’ reliability as well, but this is no different than it would be under any other circumstances.
2. Highlighting (Some) Potential Concerns
Prospective franchisees can also use AI platforms to identify some potential concerns with the franchise opportunities they are considering. As we emphasized previously, prospective franchisees should not rely exclusively on AI, and an AI summary is not a substitute for a franchise attorney’s detailed analysis of a franchisor’s franchise agreement and Franchise Disclosure Document (FDD). But an AI summary could serve as a starting point for identifying potential red flags.
With that said, there are two significant limitations to keep in mind. First, the AI summary might not be (and most likely won’t be) comprehensive. Second, AI platforms can (and frequently do) get things wrong—especially when it comes to legal issues. So, even if you use an AI platform to spot some red flags, a comprehensive analysis will still be necessary.
3. Coming Up with (Some) Questions to Ask Before You Buy
Artificial intelligence platforms may also be able to help you come up with some questions to ask before you commit to moving forward. There are many online articles on questions to ask during the buying process (including ours), and AI platforms may be able to summarize them relatively well. But even so, any list you find online (through an AI platform or otherwise) is not going to be comprehensive and will not address all the specific concerns with the franchise opportunity you are considering.
4. Comparing Franchise Opportunities (Subject to Verification)
Another way prospective franchisees may use AI during the due diligence process is to compare franchise opportunities. For example, AI platforms may be able to digest information from multiple franchisors’ FDDs and present a table comparing:
- Initial franchise fees
- Royalty rates
- Advertising fund contributions
- Renewal fees
- Termination fees
With that said, verification is necessary here as well. As a result, for prospective franchisees who use AI in this way, it will be necessary to consider questions such as:
- Is the AI platform using each franchisor’s current data (not outdated figures from an old FDD that is still available online)?
- Has the AI platform accurately captured the data from each franchisor?
- Has the AI platform compared the correct figures from each franchisor’s disclosures?
5. Comparing Franchisors’ Growth Figures and Projections (Subject to Verification)
Similarly, prospective franchisees may use AI platforms to compare franchisors’ growth figures and projections in Item 20 of the FDD (again, subject to verification). Understanding how (and where) a franchise system is growing, or contracting, is key for making an informed buying decision, and understanding whether a franchisor’s growth projections are realistic can provide insight into how much weight you should give to the franchisor’s other subjective disclosures as well.
6. Finding Complaints About the Franchisor
As a prospective franchisee, you will want to read any and all complaints you can find about the franchisor online. However, these complaints can be hard to find in some cases. Often, franchisors invest substantial resources in suppressing complaints so that ordinary search results are populated only with positive reviews.
Artificial intelligence platforms may be able to find complaints that you might otherwise struggle to find on your own. But here, too, it will be important to go to the source and make your own determination about how much weight to give to any information you find.
7. Learning About the Risks of Franchise Ownership in General
In this same vein, AI platforms can be useful tools for learning about the risks of franchise ownership in general—though you may find that ordinary search engines are just as useful. Once again, you should avoid relying on AI-generated content (which has a high risk of being inaccurate or outdated), and instead use AI as a tool for finding resources that you can use to help yourself make an informed buying decision.
Discuss Your Franchise Opportunity with National Franchise Attorney Jeffrey M. Goldstein
Jeffrey M. Goldstein is a national franchise attorney who has well over 30 years of experience helping prospective franchisees make informed buying decisions. If you are considering a franchise opportunity, we encourage you to contact us for more information. To discuss your franchise opportunity with Mr. Goldstein in confidence, call us at 202-293-3947 or tell us how we can help online today.
