If you are thinking about entering into a franchise agreement in New York, please consider these New York Franchise Warning Signs. All of the laws in New York that are intended to protect potential investors in franchises are not meant to act as a substitute for good business sense, so be aware of these common red flags, do your due diligence and hire a New York franchise lawyer to assist in the negotiation and evaluation of the franchise opportunity.
- Failure to Disclose Legally Necessary Details to Franchisees
Under New York law, no offer or sale of a franchise can take place until the franchisor has registered franchise disclosure documents (FDD) with the state of New York. Sometimes called a prospectus, the FDD contains 20+ different items of information about the franchise including the the history of the fanchisor, required fees and investment costs – among other things.If you do not receive an FDD at least ten business days before you are asked to sign a contract or pay money to a franchisor, then you should be wary. Reputable franchisors in New York will not only offer it, but will ask you to sign and acknowledge receipt of the FDD. Make sure the date is correct and that you keep a copy of the receipt for your records, as disreputable franchisors may back-date a receipt as a way to work around the 10-day rule.
- High Pressure Sales Tactics
The reason that New York Law affords you ten days cooling off period after receipt of the FDD is to afford you time to examine the disclosures and make an unhurried decision about whether or not to invest. You should never feel pressured to buy a franchise in New York or be forced to make a rash decision. You are the investor. You are in control of your investment. If you are the type that jumps the gun too quickly, get someone on your side that shall assist in doing your due diligence.
- Claims of Minimal Risk and Unrealistic Profits
There is, of course, a risk associated with buying a franchise in New York, no matter how successful a chain a franchisor may have. Be wary of guarantees of high profits with little risk – if it sounds too good to be true, it probably is.
- Unreasonable or Explained Start-Up Fees
Not only should you know what the initial fees are, but you should know if the initial fees include services or goods that the franchisor will receive before the business even opens. You should also know if the fees are refundable.
- Hastily Drafted Franchise Agreements, Disclosure Documents & Other Materials
If a franchisor is unable to put together documents necessary to present to a New York franchise, then, the franshisor is, likely, unable to put together a franchise system.
- Lack of an Ability to Talk with other Franchisees
All good franchisor are more than willing to have you contact franchisees, beware of the franchisor that does not and beware of interested franchisees.
- Lack of a Track Record of Success in the Present Franchise System or Past Franchise Systems
While the franchise system you are being presented may be new, those involved in the franchise system should have significant experience in franchising and the experience should show success. New York can be a difficult market, we suggest experience with the New York market also.