Business

Tough challenges with franchise buyer finder fees

Theoretically, a franchisor could be given the name and contact of a particular franchise buyer without disclosing it in the Franchise Offering Circular, however any smart franchise attorney will surely tell you that this is a gray area and in case of doubt, say so! If the person giving the information talks to the franchise buyer about any issue, the franchisee could be preparing for future litigation in the future if someone finds out about this and there is some kind of dispute down the road between the franchisor and the new franchisee. And if regulators find out, especially in states like CA, you’ll regret not having disclosed the facts in the disclosure documents to the franchise buyer at the time of sale.

In franchises, finder fees can require and trigger disclosure, so you should know that of course it depends on how those deals are made. A name and a phone number is different from the finder telling them how good the franchise is and then referring them, that’s really problematic legally, it could get you or the franchisor in trouble down the road, just be aware of that.

You may need to speak to a franchise attorney, various states also disapprove of these things depending on the state and the rules and regulations, I know the FTC probably doesn’t like the concept very much. Franchising is a tough business, it’s as if the rules and regulations require you to run your business with your hands tied behind your back, too much bureaucracy, they have really ruined the industry in some respects. Think how many more jobs we would have today if it were easier to franchise decent concepts and proven business models. 5-10 million more jobs I guess.

I think that’s why I liked the fact that a former franchisor had run for president, those points need to be stated and everyone should read; Grinding it Out, by Ray Kroc, among others such as the story of Dominos, Wendy’s or “Start Small and Finish Big” by the founder of Subway.

One thing’s for sure, the disclosure requirements in franchises have gotten absurd, and the Federal Trade Commission has allowed excessive over-regulation in this place, then it adds some of the burdensome regulations in the states of record and what we have now is a really insane amount of red tape slowing our economy, simply because franchises are such a huge growth engine for small businesses and that means a lot of jobs.

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