Posts Tagged 'franchise attorney'

IS BUYING A FRANCHISE RIGHT FOR YOU?

Potential Benefits. Buying a franchise may be a good choice for you if you want to operate your own business without re-inventing the wheel. When you buy a franchise (and thereby become a franchisee) you theoretically receive the following benefits:

1.         Training in all aspects of the business by the owner of the franchise system (the franchisor);

2.         Ongoing support from the franchisor;

3.         Well-recognized trademarks for your business name and services/products; and

4.         A proven and successful business system with processes that are documented in a detailed Operations Manual.

These potential benefits do not exist in every franchise system. Not all franchisors are created equal. Some franchisors bend over backwards to ensure the success of their franchisees. They understand that the success of the franchise system depends upon the happiness and success of their franchisees. However, other franchisors only care about signing up new franchisees so that they can collect initial franchise fees.

That is why it is essential for you to gather as much information as possible about the franchisor and its franchise system before you buy. Good sources of information include the Franchise Disclosure Document (“FDD”) you must receive from the franchisor at least 14 calendar days before you buy; existing franchisees; and ex-franchisees (names and contact information should be listed in Item 20 of the FDD).

Personality Types That Fit Franchising. When you buy a franchise, you independently own your franchise business operation. However, you will sign a franchise agreement, which will subject you to a certain amount of control over your operations by the franchisor. If you are a pure entrepreneur and cannot stand to follow someone else’s guidelines, then buying a franchise is probably not for you.

For example, the franchisor will likely retain control over:

  • the manner in which you do business (this can be as specific as the franchisor requiring you to use specific words when greeting new customers, for example);
  • the specific products and services you offer; and
  • the way you advertise your business (to protect the goodwill of the franchisor’s trademarks and other intellectual property).

The idea is that the franchisor requires all franchisees in the system to follow a set of procedures that have been tested and proven to be successful over the years. This helps ensure that customers have the same experience each time they do business with a franchisee in the system. It also can help ensure the success of the franchise system. However, it requires you to have a personality that is willing to subject your own great new ideas to the “system”. This is easy for some, but difficult for others.

Buying a Franchise in a Recession. Past recessions have actually increased franchise sales. Individuals who lost jobs purchased franchises. However, during the current economic climate, some franchise systems are struggling to bring on new franchisees. This is not due to a lack of individuals who are interested in buying new franchises. Rather, it is due to the fact that it is difficult for many individuals to get the financing they need to afford to open a franchise.

Today, the franchisors that are having the most success (with several exceptions, of course) are those with low initial capital requirements. These include home-based franchise businesses or service-based businesses, as opposed to large restaurants, for example.

In conclusion, whether or not purchasing a franchise is a good fit for you depends on several factors, including your experience and personality traits, and the traits of the specific franchise opportunity you are considering. If you conduct your own zealous investigation and involve a team of mentors to assist you (such as a franchise attorney, business broker and accountant) then you are more likely to end up with the best fit.

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Disclaimer: The information provided in this article is for general information purposes only and should not be construed as specific legal advice.  The application of any matter discussed in this article to anyone’s particular situation requires knowledge and analysis of the specific facts involved.

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