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What are some red flags to watch for when investing in a franchise?

On Behalf of | Nov 27, 2023 | Business And Commercial Law, Franchising |

For Florida residents who want to start their own business, a franchise might look like an effective shortcut. There is much to like about becoming a franchisee. It has an established identity, there is support from a corporation and it eliminates many hoops people need to jump through when starting a business from scratch.

However, it is wise to think and research before taking the step of buying a franchise. Not every franchisor is aboveboard in giving the details of the business. Some might be outright questionable in their behaviors. The law clearly states what to look for with fraudulent practices. Those who are thinking about a franchise should be prepared. If they have already purchased a franchise, they have legal rights.

Franchisors cannot engage in specific behaviors

When selling a product, the seller tends to give the best-case scenario. Franchisors are no different. Despite that, they cannot openly misrepresent the prospects of success. For example, if they try to guarantee a profit or say the franchisee will automatically earn a specific amount, it could violate the law.

Regarding the investment, it must also be fully disclosed so the person who is buying the franchise has a level of cost certainty. They need to know how much money they will need, what costs might come up and if it is a viable investment for them.

Some franchisors, trying boost their presence in an area, could fail to disclose that they are selling other franchises in the same general location. This can result in a redundancy and limit sales for all franchises.

Be protected from potential problems in franchising

When purchasing a franchise, it is natural to think that it will automatically be a success. This is a positive outlook that prospective business owners have with any endeavor. Enthusiasm is a good thing, but when starting a business, it is vital to think about possible challenges. It is particularly true with franchising.

The franchisor needs to adhere to a protocol. If there is a violation, then the franchisee has rights. Looking for red flags is beneficial and if problems occur, being aware of the available options is imperative.