In the Des Moines Register today there is an article about a food truck franchiser that allegedly got cross-wise with investors and franchisees. The article shows just how critical it is to perform due diligence when it relates to franchises (or any other business opportunity). I have a number of posts available I have written over the years on franchise due diligence.

But what’s interesting to me is that investors were actually asked for smaller sums of money (example $14,000) than what you might ordinarily expect for a national franchise operation. In my experience if someone is asking for you to “invest” in their business in smaller amounts such as $10,000 to $20,000, be very careful. This may be a sign of someone who is merely looking to meet a short-term cash deficit/problem rather than someone who is actually looking for a long-term investor. Business “investors” are typically asked for larger sums of money such as $100,000 and above. The individuals asked to “invest” the smaller sums of money almost always have a more difficult time getting their money back. To compound the problem agreements of this smaller nature are often not reviewed by lawyers (or sometimes lack a written agreement entirely) and almost always lack key terms to provide recourse and collateral for the investor.

Buyer beware!

 

Print:
Email this postTweet this postLike this postShare this post on LinkedIn
Photo of Rush Nigut Rush Nigut

Rush Nigut is a shareholder with the Brick Gentry Law Firm in West Des Moines, Iowa. His practice includes both transactional and litigation matters including franchising and business law. Rush started his legal blog, Rush on Business, in 2006. He has been quoted…

Rush Nigut is a shareholder with the Brick Gentry Law Firm in West Des Moines, Iowa. His practice includes both transactional and litigation matters including franchising and business law. Rush started his legal blog, Rush on Business, in 2006. He has been quoted or referenced by hundreds of other blogs, websites, and publications. He also is the editor of the Brick Gentry Trial Team blog and can help you identify the most qualified lawyer at Brick Gentry to handle your case. Our lawyers have a breadth of trial experience in personal injury, employment discrimination, business litigation, IP law, and class action cases.