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Review Your Franchising Business Contract

  Sanjiv Gupta CPA  Published 
Review Your Franchising Business Contract

About ¾ of the world’s population deals in the field of business rather than seeking employment in the form of jobs. Businesses generate the type of income that holds the ability to elevate a person’s social status within a fortnight or render the person towards no option but bankruptcy if dealt in a careless way. The manner of a person and his or her attitude in dealing with a business strategy is very essential for the success or failure of a business.

For example, an organized, well-mannered individual with a set of principles and wisdom would excel more and benefit from his abilities in the field of business rather than a person with a casual attitude. A casual attitude means that the person has no respect for the law, no knowledge regarding anything in the field of business, has no prior experience working on his own, does not realize the value of time and behaves selfishly whilst setting up a business. This type of behavior provides no benefits. Business is a field that requires sharp instincts at all stages, otherwise one can look at a life of bankruptcy after making a single wrong move.

Since the field of business is generally preferred, several countries especially countries in the west have designed laws that control the different aspects of the business. This includes dealings in all forms of business contracts be it franchising or any form of setting up a brand name from scratch. There are fundamental rules that need to be followed. These rules are set by the respective governments of the countries. These laws have been designed to prevent any form of fraudulent behavior from any party involved in the commencement of a business deal.

It has been announced repeatedly that people attempting to set up a business and especially, individuals involved in doing franchising businesses, should investigate the brand name, background information and financial history of the franchiser.   This unveils any problems related to the brand name or the franchiser. Many franchisers attempt to sweeten a business deal by sugarcoating the sales pitch but the contract that is drafted is very different from what they present.  This sort of fraud ends up harming the franchisee, which is why it is important to conduct a thorough background check before finalizing a business deal.

There are a number of laws that have been devised to prevent this fraudulent behavior from bankrupting innocent people. The federal governments of different countries have made it compulsory for the franchiser to provide the franchisee with all the details and legal documents for the franchise business proposal before the franchisee is required to make a statement of agreement or decline. During the sales proposal, the franchiser is required to provide the franchisee with a ‘Detailed Disclosure Document’, which includes all the necessary financial and legal history of the brand that is up for the franchising business. The franchisee owns the right to ask the franchiser any questions that he or she may harbor during the pre-sale proposal presentation.

The ‘Detailed Disclosure Document’ contains the following vital pieces of information from the franchiser:

  • Financial statements which relate the accurate audited statements of the company
  • A complete profile portfolio, which contains the executive details of the company
  • Criteria of the required franchisee responsibilities
  • The information of the minimum ten purchasers of the product in the area of the franchisee
  • Accurate financial protocols for maintaining the franchise chain as well as the franchise business’s startup cost

  • Validate the earning packages stated in the ‘Detailed Disclosure Document’. A franchisee can accomplish this task by acquiring information from other franchisers who provide proposals in the area.
  • Complete the ten days’ period before validating an answer to the respective franchiser. A franchisee should utilize this period to the best of his or her advantage without worrying about withdrawal.
  • The appointment of an attorney and accountant can potentially help a franchisee investigate the legal and financial counterparts of the franchising business in question. These is the potential actions that can provide verification for the business proposal to be authentic in all its claims or not.
  • Ask the franchiser for a detailed account in writing of all the successful purchasers of the franchising protocols.
  • Compare the benefits of the offer with other franchise owners in the area as well as investigate what other potential brands have to offer.
  • Read the contract once it has been drawn and sign the contract, which holds the criteria of your interest in writing, which were promised to you in the pre-sales pitch.


These few basic rules of investigations hold the key to running a successful franchising business.