Some things to consider if your new business is a franchise

For many Maryland entrepreneurs, a franchise is the business of choice. It is a chance to start a new business with established products or services, marketing and trade name. The prospect may seem attractive, but it is important to conduct a substantial amount of due diligence before signing any documents.

The first set of documents typically received from the parent company is the Franchise Disclosure Document (FDD). This document has crucial information in it that might help you evaluate the business and gauge your desire to participate in it. You should receive the FDD prior to signing any documents or paying any money to the company. This is the time to involve an attorney in the process if you have not done so already. If there is no notice informing you how much time you are given with the FDD, get to an attorney as quickly as possible.

The FDD should include audited financial statements for the last three years, and those should be reviewed by someone with accounting experience. Other information included in this document includes 10 years of the company's litigation history, if any. Even though this information is provided, an independent search should be done. This can help determine whether the company is being truthful in the FDD.

This is just one of the first steps in starting a new business as a franchisee. There are more documents to come, including the franchise agreement. Attempting to go through this process alone is not advisable. An attorney can help you understand all of the documentation, negotiate if possible and provide you with assistance in ensuring that the franchise complies with all Maryland and federal regulations.

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Daniel S. Willard, P.C.
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