Franchising Still Fraught With Pitfalls Despite New FTC Rule

AllBusiness:

Ever since Ray Kroc flipped his first hamburger and launched what eventually became the McDonald’s restaurant chain, an untold number of small business owners have adopted the same franchising model, or bought into an existing franchise operation.

Today, thanks largely to the Internet, franchise opportunities have exploded in number; you can choose from more than 3,500 offerings. But it’s still largely a “buyer beware” business, despite the involvement of government regulators, trade associations, more than 1,600 franchise attorneys, and thousands of franchise “consultants.”

“It’s incumbent upon the buyer to know what they’re getting into, yet very few people understand what’s happening and tons of lives have been ruined through bad investments,” says Nick Bibby, who heads The Bibby Group, a franchise consulting firm in Shreveport, La., and also writes on the subject for AllBusiness.com.

The Federal Trade Commission (FTC) has regulated franchising since the late 1970s, when it set forth what’s come to be known simply as the franchise rule. Central to the rule was the Uniform Franchise Offering Circular (UFOC), a document designed to help individuals conduct thorough due diligence before buying a franchise. Read full article.