The Prospectus 

Prospectus sounds like a big, long, and maybe even scary thing -- but it really isn’t. In fact, it’s one of the simplest things you’ll have to deal with throughout the entire franchising process -- but it’s also one of the most important. 

What is a prospectus? Simply put, a prospectus is the franchisor’s attempt to sell you on his or her franchise. It’s an incredibly useful document because it combines information about the company, the terms of the franchise agreement, business plans, and -- most importantly -- financial information about the franchise. Many times, the prospectus will even include a copy of the franchise agreement. Note that this should be reviewed by an attorney, not simply skimmed by you (more on that later). 

What It Is 

Any prospectus worth its salt will try to convince you that this is the franchise you should -- nay, must -- purchase. To that end, they will obviously present everything in a very positive light. You can generally assume that the information in the prospectus is accurate (very few franchisors will out-and-out lie), but it’s worth taking with a grain of salt, all the same. Remember that the goal of the prospectus is to sell the franchise. It’s not going to give you the whole picture, which means it will be up to you to hunt down those little facts when you investigate the franchise later on. 

For the time being, however, the prospectus is an extremely useful document because it will give you a sense of whether or not you want to be involved with this company. In other words, although your entire decision should not be based on the prospectus, you will find a company’s prospectus very useful in deciding what type of franchise you hope to purchase and whether you want to work with these individuals. 

A prospectus might be heavy reading, so you won’t want to gather a massive collection. At exhibitions and the like, most franchisors will have a collection of smaller, more brochure-like information packages. Review these for your initial impressions, collect a list of those that interest you, and contact only those franchisors for a prospectus. 

What It Contains

If a franchisor can’t even put together a prospectus properly, he or she probably isn’t someone you want a long-term business relationship with. Listen to your instincts as you read the prospectus, and don’t be afraid to ask questions. This is an information-gathering endeavor, and the franchisor will be happy to address your concerns.

With that in mind, here are some things you should definitely find in the prospectus: 

·  An introductory letter: Each prospectus should contain some sort of communication from the franchisor giving you an idea of his or her objectives for the franchise. If this communication is personalized, so much the better. 

·  History of the franchise: By the time you finish the prospectus, you should have a solid idea of the company’s past, its successes, and its struggles. 

·  Financial information: The prospectus should also give you an idea of how much money you will need to purchase the franchise -- not only the franchise fee, but how long you can expect to go before you see a profit, and what sort of capital you’ll need until then. 

·  Franchisee information: This includes the type of franchisee the franchisor is seeking, the specific qualities and experience you need to bring to the table, and the actual recruitment process the company follows. 

Many times, the prospectus will include more information than this, including a copy of the franchise agreement, a franchising application form, or more detailed company or product information. However, at a bare minimum, the franchise prospectus must contain the above four things. 

What To Watch For 

As you read the prospectus, keep this checklist handy! 

·  The prospectus contains all four of the above items 

·  The prospectus is professional and free of errors 

·  The franchise sounds like an interesting and enjoyable business 

·  The franchise sounds like a viable business opportunity 

·  The company’s history is free of any major upheavals (or they are adequately explained) 

·  The company has a successful financial history and demonstrates good growth levels 

·  You have the capital necessary to invest in this franchise 

·  You have the qualities the franchisor expects 

·  Your sense of the franchisor and of the company is positive