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Franchisor background checks are important! Shady characters loom in the corners as this article explains.

Dubious Franchise Salesmen

Those looking to buy a franchise should read this article at the Denver Post. It tells the story of a semi-famous author who wanted to get into the smoothie business by buying a Juice Stop franchise (now defunct).

The moral of the story?
When deciding whether to buy a franchise, your diligent independent research is essential. While some franchises have help people achieve their own version of success, too often people are destroyed emotionally and financial.
The prospective franchisee should ignore the saleman’s pitch, and make the decision to buy based on one’s own research and facts.

Those with moderate financial success are accustomed to investing many thousands in stock or real estate without a lot of indepent research. If it looks good and seems like a fair price, we buy it.

An investment in a franchise, however, shifts much of the burden of earning a return on you and the integrity of your franchisor. The upfront independent research must include background checks on the franchisor’s management and interviews with existing franchisees. Hell, pay some franchisees to see and photocopy their financial results. That will give you a model of some realistic financials. It’s that important.

The article ends by describing how the franchisors of Juice Stop filed bankruptcy, and several years later the same people started another juice bar franchise called Squeeze. I know it most people improve after making mistakes, but I don’t trust those guys. It’s one thing to fail, but your true character is exposed when you lie and ignore your franchisees on the way down.

This story should keep you on your skeptical toes when investigating franchise opportunities.

About Ryan Knoll

Attorney and advisor with an interest in franchising. Feel free to email me comments and questions on the "Contact Us" page.

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