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Things to know about franchising are:

  • You should know about the status of the franchisors in the market before investing your money into the company.
  • You should clearly know the legitimacy of the franchise before getting into any sort of commitment. Legal dispute can harm a business.
  • The type of training and support that the franchisor would provide should be clearly known.
  • The Uniform Franchise Offering Circular (UFOC) is a legal document that franchisors must furnish to franchisees, as regulated by the Federal Trade Commission. This document must be presented at least 10 days prior to the signing of the Franchise Agreement. The UFOC contains material information about a franchise operation and is designed to help franchisees analyze the merits of a franchisor. Watch out for "hidden" costs that won't be spelled out even in the best-prepared UFOC, such as: rent, security and utility deposits to your landlord.
  • Legal and accounting fees (between $1,000 and $2,000 for an attorney to review your franchise agreements, plus an additional $500 to $1,000 to set up a corporation, LLC or other legal entity for your franchise business).
  • The cost of debt service, if you have to borrow money to buy into the franchise.
  • Travel, lodging and meal expenses when attending the franchises required training programs.
  • Property/casualty, liability and other insurance-you should make a copy of the franchise's insurance requirements from the UFOC, fax them to your insurance brokers, and ask for premium quotes before you sign the franchise agreement.
  • Life and disability insurance, employee benefits and payments you will make to retirement plans such as an individual 401(k) or SEP-IRA.