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http://www.cgpglaw.com/ Expert franchise law attorney Joe Gottlieb is available to handle any of your franchising law questions, including “What might be a red flag for a prospective franchisee when evaluating a franchie?” Contact Joe today: 678) 775-3545 jgottlieb@cgpglaw.com Distributed by Tubemogul.

Transcript

Question: What might be a Red Flag for a prospective franchisee when evaluating a franchise offering? Joseph Gottlieb: Well, there are thousands of franchise opportunities out there in the market; more now than even before. Because the costs of entry as a franchisor is so low and that all of franchisor really has to do to legally offer a franchise is to have an FDD or a Franchise Disclosure Document in place. It's a very, very important that the franchisee look very, very closely at an offering. One of the things that the franchisee might see first which might be a red flag will be a poorly prepared FDD. Poorly prepared and that it may have something that like typographical errors or grammatical errors that's a sure tip-off. A short history, a short operating history might be a red flag, it might not. A high rate of franchisee turnover as would be disclosed in the Franchise Disclosure Document is also a red flag. But since the Franchise Disclosure Document will provide information about current and former franchisees, the due diligence process of contacting those franchisees and former franchisees is really important and if a potential franchisee cannot get validation, strong enough validation from the current franchisees such as responses to a question that might be asked is would you do it again? What's the level of franchisor support? If those answers are either equivocal or a franchisees is not willing to share information, that might be a red flag. Another potential red flag might be a franchise system in which the franchisee is required to purchase virtually everything they need to operate the franchise system from the franchisor. That could put the franchisee in a vulnerable position with regard to pricing and the supply and issues of that nature. Also, certain factors in a franchise agreement might be a red flag. For instance, the ability of the franchisor to change financial terms, to change the franchisee's territory, or a franchise agreement particularly in a new franchise system that may have a duration as short as five years. For more information contact: Joseph Gottlieb, LLB Franchise & Corporate Law, Cohen, Goldstein, Port & Gottlieb; 678-775-3545, jgottlieb@cgpglaw.com.