- Firstly, the Franchisor should be an established company with several years of successfully operating this franchise system under their own steam. They may have started off as a small business entrepreneur and then grown the business to at least 3-5 outlets (normally corporate units) prior to considering franchising the concept to other investors. In my opinion, they should then have, or in the process of, selling a few independent franchises.
- During this time, they should have established a solid business system that they could then franchise to other prospective owners that would find it attractive to invest in.
- Their franchise must then be registered with the Federal Trade Commission (FTD) who regulate all franchises in the USA.
Once approved by the FTD, that Franchisor is then allowed to offer their concept to other private investors.
- The Franchisor must then file a Federal Disclosure Document (FDD) in accordance with the requirements of the FTC.
- Under Item 19 of the FDD the Franchisor, if it makes performance representations (FPR) to prospective franchisees in the sale of a franchise, it must disclose such FPR’s.
- The Franchisor should have a solid system in place covering all aspects of starting a new location franchise such as Supply chain vendors, Site Location expertise, Technological advances, Staffing assistance, Training & Support etc.
After all, this is what you are paying for with your up-front Franchise Fees!