"The Profile of Franchising: 2006" study series by the International Franchise Association Educational Foundation and FRANdata found that the number of concepts was growing in 17 of 18 industry categories. Only the travel industry declined. Nearly 900 concepts began franchising from 2003 to 2005 with increases ranging from 67 percent in retail food to 4 percent in personnel services.
There should be a franchise available for every potential entrepreneur as the array of choices increases. While a franchise provides a quicker and simpler path for would-be business owners, it isn't risk-free. The International Franchise Association says franchising may not be suitable for everyone.
Significant attention is paid to the franchise disclosure document, which many consider to be the most valuable tool available to a prospective franchisee. The document is prepared by franchise systems to satisfy the pre-sale disclosure requirements mandated by the U.S. Federal Trade Commission and the franchise laws of many states.
The disclosure document, sometimes 200 pages in length, includes information about the franchise's history and business model, terms of the agreement and financial statements. The association strongly encourages prospective franchisees to seek professional guidance to aid in understanding this document.
Importantly, it also lists recent litigation, contact details of some current and former franchisees, and information about franchise agreements that were recently terminated. Potential investors are especially urged to contact former franchisees to require if they were successful and received the support and services they were promised.
FTC Consumer Guide
Another resource available to the potential investor is the Federal Trade Commission booklet. "The Consumer Guide to Buying a Franchise," which helps the potential investor to understand how to investigate franchise opportunities and know what questions to ask before investing. The government guide is available on the association's site, www.franchise.org. The guide includes a checklist potential investors should use to assess how much money they may have to invest, their ability to operate a business, and their goals and expectations.
Those interested in acquiring a franchised small business are encouraged to consult with professionals, such as accountants and lawyers, who specialize in the industry. Those professionals who are IFA...