ABA Family Legal Guide

Forming and Operating a Small Business

Franchising and Buying a Business

Buying a Franchise

How do I work out whether a franchise is a good deal?

The Federal Trade Commission (FTC) has a Franchise and Business Opportunity Rule, also known as the FTC Franchise Rule. It requires franchisors to give you information that will enable you to decide whether the deal is one you should accept or run away from. A number of state laws require somewhat more stringent disclosures, and usually franchisors meet both requirements at once with a Uniform Franchise Offering Circular.

Under FTC rules, the franchisor is required to give this document to you at your first face-to-face meeting with the franchisor, or least ten working days before you legally commit yourself to the purchase or pay any money. The offering is a detailed disclosure statement. It's not fun reading, and neither is the proposed franchise agreement (contract) that has to accompany it. But if your life savings are on the line, you have plenty of incentive to check this opportunity out. Remember, the government doesn't vouch for the accuracy of these documents. It's up to you to verify the information and use it wisely. The FTC offers a wealth of information on franchising on its website at www.ftc.gov.