worked in the franchise industry for 35 years I've witnessed just about every selling
technique used by franchise sales people and developers. In my opinion, the
most prevalent practice was providing verbal financial information to
prospective franchisees whereby there was no Item 19 disclosure. Another
commonly used practice was to provide a list of existing franchisees that
prospects should contact for feedback, rather than encouraging contacting any
franchisee. Finally, there were a number of franchisors that employed overly
aggressive franchise sales representatives.
It's my opinion
that these franchise sales techniques are becoming a thing of the past although
it would be naive to believe that these practices have totally disappeared. To prevent falling victim to questionable sales
techniques, candidates can do the following:
1. Absent an Item 19 disclosure, request
any financial representations made by a franchisor representative in writing.
If they decline, report the incident to franchisor senior management. A number
of franchise professional advise that the absence of an Item 19 disclosure (except
for a startup franchisor) should be reason to eliminate that franchise from
2. Don't limit franchisee feedback from
franchisee contacts suggested by the franchisor but rather contact existing as
well as any terminated franchisees. Try to gain feedback from a cross section
of franchisees; those in operation for one year, three or five years.
3. Obtain franchise performance data and
statistics from credible firms like FranchiseGrade.com,
that doesn't promote or sell franchise opportunities.
4. Contact third party lenders that
specialize in the franchise industry to determine if the franchise you're
considering is on their list. Certain lenders like Apple Pie Capital have
stringent qualifying standards for franchise systems. Ask if the franchise you're
evaluating is on their list or was reviewed by them.
5. Unless you have a strong financial
background you should engage the services of a CPA with some familiarity with
The franchise industry has raised the bar for franchisors
when it comes to marketing and selling franchise opportunities. However,
caution should be the watch word, when evaluating any franchise opportunity.