Advice from the FTC as to how to gather facts about a business you are thinking of purchasing
- Study the disclosure document and proposed contract carefully.
- Interview current owners in person. (They should be listed in the disclosure document.) Visiting them in person may help you identify any that are "shills" — people paid to give favorable reports. Don't rely on a list of references selected by the company because it may contain shills. Ask owners and operators how the information in the disclosure document matches their experiences with the company.
- Investigate claims about your potential earnings. Some companies may claim that you'll earn a certain income or that existing franchisees or business opportunity purchasers earn a certain amount. Companies making earnings representations must provide you with the written basis for their claims. Be suspicious of any company that does not show you in writing how it computed its earnings claims.
- Sellers also must tell you in writing the number and percentage of owners who have done as well as they claim you will. Keep in mind that broad sales claims about successful areas of business — "Be a part of our $4 billion industry," for example — may have no bearing on your likelihood of success. Also, recognize that once you buy the business, you may be competing with franchise owners or independent business people with more experience than you.
- Shop around. Compare franchises with other business opportunities. Some companies may offer benefits not available from the first company you considered. The Franchise Opportunities Handbook, published annually by the U.S. Department of Commerce, describes more than 1,400 companies that offer franchises. Contact those that interest you. Request their disclosure documents and compare their offerings.
- Listen carefully to the sales presentation. Some sales tactics should signal caution. For example, if you are pressured to sign immediately "because prices will go up tomorrow," or "another buyer wants this deal," slow down. A seller with a good offer doesn't use high-pressure tactics. Under the FTC rule, the seller must wait at least 10 business days after giving you the required documents before accepting your money or signature on an agreement. Be wary if the salesperson makes the job sound too easy. The thought of "easy money" may be appealing, but success generally requires hard work.
- Get the seller's promises in writing. Any oral promises you get from a salesperson should be written into the contract you sign. If the salesperson says one thing but the contract says nothing about it or says something different, it's the contract that counts. If a seller balks at putting oral promises in writing, be alert to potential problems and consider doing business with another firm.
- Consider getting professional advice. Ask a lawyer, accountant, or business advisor to read the disclosure document and proposed contract. The money and time you spend on professional assistance, and research — such as phone calls to current owners — could save you from a bad investment decision.