Consumer Protection BureauConsumer Sourcebook – Extra Note: Business and Franchise Opportunities
The Federal Trade Commission requires those who are selling franchises and other business opportunities to provide certain information to the potential buyers.
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Not every business or franchising opportunity is a multi-level marketing scheme. Many are legitimate opportunities for people with the entrepreneurial spirit to own their own businesses. The Federal Trade Commission requires those who are selling franchises and other business opportunities to provide certain information to the potential buyers.
At least ten business days before a potential buyer signs any contracts or pays any money, the franchise seller must provide a detailed disclosure document outlining 20 important items of information about the business. This disclosure document gives the potential buyer information about the business and can be helpful in comparing business opportunities. The information must include:
- The names, addresses, and telephone number of other purchasers
- A fully-audited financial statement of the seller
- The background and experience of the business's key executives
- The cost required to start and maintain the business
- The responsibilities the buyer and the seller will have to each other once the buyer buys
The Federal Trade Commission recommends that the following steps should be taken by anyone considering buying a franchised business:
- Study the disclosure document and proposed contracts carefully, because they alert you to terms that are not to your benefit.
- Talk to current owners. The disclosure document must list names and addresses of people who currently own and operate the franchise or business opportunity. Call several of the people listed as they are likely to be good sources of information. Ask if the information in the disclosure document matches their experiences with the company.
- Investigate earnings claims, since those in the disclosure document are only estimates. The seller must tell you in writing the number and percentage of other owners who have done as well as they claim you will do. Remember, once you own the business you will be competing with other franchise owners and independent business people with more experience.
- Shop around and compare franchise opportunities. The Franchise Opportunities Handbook, published annually by the US Department of Commerce, describes more than 1400 companies offering franchises. Get disclosure documents from several companies to compare offerings. (To obtain a copy of the Handbook, contact the Superintendent of Documents, US Government Printing Office, Washington, DC 20402 at 1-202-783-3238, or email at email@example.com.)
- Listen carefully to the sales presentation. Tactics such as pressuring you to sign immediately should signal caution. Remember, you must have the disclosure document for ten business days before signing any legal documents or paying any money.
- Get the seller's promises in writing. If a seller balks at putting verbal promises into the contract, you should take this as a warning signal.
- Consider getting professional advice. You may want to consult with a lawyer, accountant or business advisor to help you find the best deal. A little money spent on professional assistance could prevent a major loss due to a bad investment.
Distributorship opportunities for products sold in vending machines, racks or display cases are specifically regulated under New Hampshire law, RSA 358-E.
New Hampshire Department of Justice
33 Capitol Street | Concord, NH | 03301