Anyone wishing to purchase a franchise is required to receive a “Franchise Disclosure Document” that has been filed by the franchisor with the Federal Trade Commission. This document is similar to a mutual fund prospectus and must be given to prospective franchisees at least 14 days before the franchisee signs any papers or the franchisor accepts money.

When a prospective franchisee reviews a franchise disclosure document, one of the most important items, in my opinion, is the character of the founders and the board of directors such as the Chief Executive Officer, the Chief Financial Officer, and others. Buying into a franchise is like taking on business partners and you should be the judge as to whether or not they meet your standards.

The following information about the franchisor’s founders and members of the board of directors are required of the franchisor by the Federal Trade Commission (FTC) to be included in the Franchise Disclosure Document:

Business History
The Franchise Disclosure Documents requires that the founders and Board of Directors disclose their employment and business history. This factor alone may be sufficient to impress you and entice you to read on, or may make you look to another company. Franchises that have a high probability of success will have founders and directors that have a lifetime of successful business history in the same or related industries and the franchise they are offering is one in which they have experience and know how.

Bankruptcies
The Franchise Disclosure Document will tell you if the founders and directors have had any bankruptcies in their past. Fraudulent franchises are offered every day and some are nothing more than criminal money-laundering schemes designed to take your money and then bankrupt themselves shortly down the road.

Criminal History and Background Check
Another key element of the Franchise Disclosure Document, as it pertains to the character of the founders and board of directors, is it requires them to list their criminal background history. If a franchise is being run by a gang of criminals, this section forces them to reveal such information.

As you can see, you can get a good feel as to who you are dealing with when you review these sections of the Franchise Disclosure Document. You should be critical of the people who you will be dealing with for the next decade or more and look for those franchises that are run by people with experience and good character. The FTC’s Financial Disclosure Document seeks to provide this information to prospective franchisees.