A franchise or business opportunity seller must give the prospective buyer a detailed disclosure document at least ten (10) business days before the buyer pays any money or legally commit himself to a purchase. The disclosure document includes:
" Names, addresses, and telephone numbers of at least 10 previous purchasers who live closest to the buyer; " A fully audited financial statement of the seller; " Background and experience of the business's key executives; " Cost of starting and maintaining the business; and " The responsibilities buyer and the seller will have to each other once the buyer has invested in the opportunity.
Franchise sellers also must tell a prospective buyer in writing the number and percentage of owners who have failed.
Chicago, Illinois Franchise Disclosure Checklist: In accordance with the FTC's Franchise and Business Opportunity Rule, prospective franchisees in Chicago, Illinois should be aware of certain matters that must be disclosed before entering into a franchise agreement. The following checklist outlines key areas that must be covered: 1. Franchisor Background: Chicago franchisees should receive full information about the franchisor's history, business experience, litigation history, and any previous bankruptcies. 2. Financial Statements: The franchisor must provide audited financial statements for the past three years, including income statements, balance sheets, and cash flow statements. These should be prepared according to Generally Accepted Accounting Principles (GAAP). 3. Initial Franchise Fee: The amount of the initial franchise fee and any ongoing fees, such as royalties or advertising contributions, must be clearly disclosed. Additionally, any financing options or discounts offered by the franchisor should be specified. 4. Estimated Initial Investment: Prospective franchisees need a comprehensive breakdown of the estimated initial investment required to start the franchise. This should include costs for equipment, inventory, real estate, leasehold improvements, and any other relevant expenses. 5. Territory Restrictions: Franchisees should understand any restrictions on the territory they will operate in. This may include exclusive or non-exclusive territories, density limitations, or geographic boundaries. 6. Training and Support: Franchisors must disclose the nature and extent of initial and ongoing training programs, as well as the availability of support services, such as marketing assistance, operational guidance, or technology support. 7. Trademarks and Intellectual Property: Franchisees must receive information regarding the trademark or service mark they will use, any pending or past litigation involving the franchisor's intellectual property, and any restrictions or terms related to its use. 8. Franchisee Obligations: All obligations and responsibilities of the franchisee, such as minimum purchasing requirements, operational standards, and quality control, must be clearly outlined. 9. Terminations and Renewals: Franchisees need to be informed about the conditions under which the franchise agreement can be terminated by the franchisor, any renewal or transfer rights, and any potential fees associated with termination or renewal. 10. Financial Performance Representation: If the franchisor makes any claims or representations about the potential financial performance of the franchise, these should be supported by reliable written data. 11. Franchise Agreement Review: Prospective franchisees should be advised to seek professional legal and financial advice before signing the franchise agreement itself. These are the essential matters that must be disclosed to prospective franchisees in Chicago, Illinois, as required by the FTC's Franchise and Business Opportunity Rule. By following this checklist, franchisors can ensure transparency and compliance while empowering prospective franchisees to make informed business decisions. Note: Different types of franchise businesses may have slight variations in the disclosure requirements, depending on the specific industry or nature of the franchise. However, the general principles outlined above apply to most franchise opportunities.Chicago, Illinois Franchise Disclosure Checklist: In accordance with the FTC's Franchise and Business Opportunity Rule, prospective franchisees in Chicago, Illinois should be aware of certain matters that must be disclosed before entering into a franchise agreement. The following checklist outlines key areas that must be covered: 1. Franchisor Background: Chicago franchisees should receive full information about the franchisor's history, business experience, litigation history, and any previous bankruptcies. 2. Financial Statements: The franchisor must provide audited financial statements for the past three years, including income statements, balance sheets, and cash flow statements. These should be prepared according to Generally Accepted Accounting Principles (GAAP). 3. Initial Franchise Fee: The amount of the initial franchise fee and any ongoing fees, such as royalties or advertising contributions, must be clearly disclosed. Additionally, any financing options or discounts offered by the franchisor should be specified. 4. Estimated Initial Investment: Prospective franchisees need a comprehensive breakdown of the estimated initial investment required to start the franchise. This should include costs for equipment, inventory, real estate, leasehold improvements, and any other relevant expenses. 5. Territory Restrictions: Franchisees should understand any restrictions on the territory they will operate in. This may include exclusive or non-exclusive territories, density limitations, or geographic boundaries. 6. Training and Support: Franchisors must disclose the nature and extent of initial and ongoing training programs, as well as the availability of support services, such as marketing assistance, operational guidance, or technology support. 7. Trademarks and Intellectual Property: Franchisees must receive information regarding the trademark or service mark they will use, any pending or past litigation involving the franchisor's intellectual property, and any restrictions or terms related to its use. 8. Franchisee Obligations: All obligations and responsibilities of the franchisee, such as minimum purchasing requirements, operational standards, and quality control, must be clearly outlined. 9. Terminations and Renewals: Franchisees need to be informed about the conditions under which the franchise agreement can be terminated by the franchisor, any renewal or transfer rights, and any potential fees associated with termination or renewal. 10. Financial Performance Representation: If the franchisor makes any claims or representations about the potential financial performance of the franchise, these should be supported by reliable written data. 11. Franchise Agreement Review: Prospective franchisees should be advised to seek professional legal and financial advice before signing the franchise agreement itself. These are the essential matters that must be disclosed to prospective franchisees in Chicago, Illinois, as required by the FTC's Franchise and Business Opportunity Rule. By following this checklist, franchisors can ensure transparency and compliance while empowering prospective franchisees to make informed business decisions. Note: Different types of franchise businesses may have slight variations in the disclosure requirements, depending on the specific industry or nature of the franchise. However, the general principles outlined above apply to most franchise opportunities.
