Buying a Franchise: Understanding the Franchise State Registration Guidelines
When considering to buy a franchise, it can be a consuming and complicated process for many people who maybe haven’t been in the franchise industry segment before. The difficulty starts first, finding the industry segment and type of business that you find interesting with the most potential for financial gain, then finding the right franchisor to match up with and determine you can partner with as a franchisee. All of this can be cumbersome when there are so many franchise options out there. The last thing that a franchise buyer wants to consider would be reviewing the franchise state registration protocol to confirm that the franchise offering had been registered by the appropriate states (http://www.nasaa.org/industry-resources/investment-advisers/franchise-registration-and-disclosure-guidelines/).
Why is this something to consider when looking into franchises? For one, it shows whether the franchise brand is on top of their franchise compliance work and has their act together. Obviously, working with a franchisor who is managing the franchise process correctly is a good idea, making sure they are compliant with franchise regulations is a good idea. Why else is this a good idea? The states that require franchise registration have rules and regulations that protect the franchise buyer, the attorneys appointed by that state will actually review, analyze and approve the franchise disclosure document as to whether it has been written correctly and whether the terms are appropriate for the franchisee. There are different governing bodies for each of these states – New York is the New York Department of Law, California is the Department of Business Oversight, Maryland is the Attorney General and other states have their own set of regulations.
How can you find out if a franchise is registered with a particular state? Start out with the states that provide information on the franchises registered in that state online. The Department of Business Oversight provides an extensive database of existing franchisors registered in California (http://www.dbo.ca.gov/CalEASI/CalEASI.asp) where anyone can log on and search to see detail on a franchise system including uploaded versions of the documents themselves. The Minnesota Department of Commerce also provides a great database where franchise information can be downloaded any time without cost (https://www.cards.commerce.state.mn.us/CARDS/). If as a franchise buyer, you are so inclined, you can review Franchise Disclosure Documents, Franchise Agreements and audited financials of the franchisor for any brands that are registered in that state. These databases can be excellent sources for information on not only the franchises you might be interested in buying, but also the competition in related fields so you can review all of the investment opportunities available. Altogether, information related to franchise registrations can only help you in making a good franchise investment decision.
For more information on how to buy a franchise, contact us: