International Law

Do Due Diligence Before Buying a Franchise

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I am going to whack this advice about how to perform pre-purchase due diligence when buying a franchise.

"Through due diligence, a prospective buyer of a franchise gathers detailed information about the business potential and profitability, financing requirements, operational risks and other factors that must be discovered and analyzed before proceeding with the deal.

In turn, due diligence also enables the seller or franchisor to evaluate the terms of the sale, the creditworthiness of the buyer, tax consequences etc."

This sounds like good advice, but there is a huge danger lurking here. Any information that you find that is not in the FDD is information that you cannot legally reliable upon.

When you sign the franchise agreement, you will sign an agreement saying that the only information that you relied upon was revealed in the FDD.

What you must do is compare the oral representations, marketing material with what is contained in the FDD - no wonder why this exercise costs between $4,000 - $5,000. But is the only way to preserve your capital.

Full post as published by Misleading Advertising Law on October 16, 2008 (boomark / email).