Where other businesses struggle, franchise businesses thrive. Wendy’s and McDonald’s are prime examples of successful franchise businesses, and also provide inspiration for those individuals who really want to form their own successful businesses in the future. With a brand behind you and a good idea of what does and does not sell, it is no wonder that you have chosen to consider a franchise.
There are two types of franchises out there. One is the good franchise that takes care of its franchisees, providing training and support throughout. The second type does nothing but take from the franchisee and pushes for profit. There is a third type of franchise and that is the one that will rip off franchisees, taking them for as much money as possible. The latter two are not worth the time, money and energy, whereas the former is extremely desirable.
As such, it is essential that you do your research and investigate a franchise thoroughly before signing a contract or paying out any money. The list of questions below may help you to find the better ones as the answers they will yield will give you enough information to make an informed decision:
1. Have you and your attorney analyzed the franchise agreement in detail and do you both completely agree with the details?
2. Are there any elements or step required of you that would break the law or be to the detriment of yourself or your country?
3. Do the provisions in the franchise agreement give you exclusive territory for the period of your contract? If not, what is the maximum number of franchises that may open in your area?
4. Is this franchisor connected in any way with any other franchise company handling similar products or services?
5. If you answered yes to the above question, what is your protection against the second franchising company?
6. If you decide to end the franchising contract for any reason, what are the provisions for you to pull out of the contract and how much would you have to pay to break the agreement?
7. Are you able to sell your franchise during or at the end of your contract? If you are legally allowed to do so, what are the repercussions related to compensation?
8. What time period represents the duration of your contract and how long has the franchisor actually been in full operation?
9. Does the company offering you this franchise have a reputation for honesty and fair dealing among its franchisees?
10. Has the franchisor shown you any certified figures indicating exact net profits of one or more of its members, and have you personally checked the figures with these people?
11. Are you able to tap into franchisor assistance with training, PR, advertising, capital, credit or merchandising?
12. Are you offered assistance for finding the best location possible in your chosen area?
13. Does the franchising firm have solid financial input to ensure stability and the establishment of goals?
14. Does the franchisor have experienced management, trained in-depth?
15. Can the franchisor do anything above and beyond what you are capable of yourself?
16. Have investigations into your background been carried out and has the franchisor been assured that you are capable of making a profit?
17. Does the state in which you live in have franchising laws in place, and does the franchisor adhere to them completely?
18. How much equity capital will you need to purchase the franchise and operate it until your income equals your expenses?
It is extremely important to answer these questions fully and to your complete satisfaction. If this is the case then you may be extremely eager to become a franchisee. However, you should research all answers to get them verified in several places to ensure that your investment would be a wise one.
Purchasing a franchise can provide you with stability and profits in a short period of time but that is not to say that it is infallible. Less than 20% of all franchises fail so you need to ensure that you do not become a statistic. Information regarding specific franchising ideas can be found in the franchising directories, which are generally available at the local library. This will give you a little assistance to get started but you need to ensure that you are completely happy before committing.
About the Author:
GlobalBX provides a FREE business for sale exchange connecting business buyers, sellers and lenders. Search over 32,000 businesses for sale and franchise opportunities. Sell a business for free with no listing fees and zero commissions. We have all the top franchises as well as franchise resales. Find franchise reviews and get free franchise information. You can also contact over 300 lenders directly and get a business loan.
Tag: franchisor
Franchising has a longer history than many people may imagine but there have been several defining moments during its history. One of the biggest events occurred on October 21, 1979 when the Federal Trade Commission (FTC) introduced the Franchise Rule. This was designed to protect franchisees because it asserted that all US operational franchisors were legally obliged to fully disclose details that all potential franchisees should know before committing to investment.
As such, it enforced FTC standards to ensure that all disclosures contained uniform information that has been prepared to meet the legal criteria. One of the main requirements of this law ensured that there has to be evidence to support any financial details given. This in turn assures all potential franchisees that there is profit to be made and make them fully aware of any pitfalls.
More specifically, the Franchise Rule requires the following information to be disclosed by all franchisors:
(a) The franchisor must declare its affiliates, directors, officers, management and individuals responsible for all areas of the business, such as training, support, and franchising information.
(b) The franchisor must declare whether it or any of its officers, management, and directors have ever been bankrupt or faced lawsuits in the past, even those from before the individual in question joined the business.
(c) The exact amount you are expected to pay in franchise fees and various other associated charges must be disclosed. This includes all immediate and ongoing payments after the franchise contract is signed and the business has opened.
(d) Any and all restrictions on the quality of goods and services that you, as a franchisee, may use. This includes any purchase restrictions that may be in place.
(e) Any help and support that will be offered by the franchisor and any affiliates including financial support.
(f) All restrictions applicable to the goods and services you will be managing and selling, as well as any restrictions that you have to work with when dealing with customers.
(g) Any advantage or guarantees provided regarding the location and locality of the franchise.
(h) The franchise conditions under which your franchise may be terminated, sold on to another franchisee, repurchased, or modified.
(i) Franchisee training programs that are available and any fees associated with them.
(j) The involvement, if any, of celebrities or known figures in the public eye within the business, whether in advertising or behind the scenes.
(k) Site selection assistance that is offered by the franchisor.
(l) The number of present franchises, franchises projected for the future, franchises terminated or not to be renewed, and the number repurchased in the past.
(m) Full financial statement disclosure.
(n) How far you are expected to participate within the franchise operation after becoming a franchisee.
(o) Full disclosure of proof for earnings and profit claims made regarding other franchisees.
(p) Full names and addresses of franchisees that you can talk to.
All of the above legal considerations of franchising must be fully disclosed during initial contact with the representative of the franchise, whether that is a broker or the franchisor him or herself. As soon as the franchise opportunity is discussed, the legal considerations must be fully disclosed. The disclosure must be at least ten days prior to payment or to any franchise or related contract being signed. This pertains to the contract signing itself and also any financial statements changing hands.
The Federal Trade Commission does not require franchisors to register, but depending on the state your franchise may be in, it may have to register on a local level. The Uniform Franchise Circular Offering (UFOC) guidelines have been adopted by most states as a result of their strict disclosure requirements. However, you should never take it for granted that the franchise is registered or offers full disclosure, thus providing you with protection of any kind. You must research the franchisor fully before committing.
About the Author:
GlobalBX provides a FREE business for sale exchange connecting business buyers, sellers and lenders. Search over 32,000 businesses for sale and franchises for sale. Sell your business for sale for free with no listing fees and zero commissions. We have 1000s of franchises as well as franchise resales. Find franchise reviews and get free franchise information. You can also contact over 300 lenders directly and get a business loan.
If you are considering a franchise as your next career move, you probably already understand a number of the benefits to being a part of a franchise system. However, as each franchisor will offer different levels of assistance, it can be confusing to someone trying to evaluate a potential franchise purchase.
Since the value of a franchise is that the system has been developed to have replicable results, you will want any system you evaluate to score high in those areas that are important to the success of your unit.
Location – Location – Location
If your franchise is going to be site-dependent, the franchisor should, at a minimum, provide guidelines for selection of a site and the general terms of a lease agreement applicable to this type of location. Some franchisors will provide company personnel who will help you search for and select a site while some even work with national real estate brokers to find the best properties. If your franchisor provides help in site selection and lease negotiation, you are working with a good company.
Build-out Assistance
A typical franchise will provide each franchisee with instructions for the design and lay-out of the store along with details of where to purchase the components. As group buying power an important benefit of being part of a franchise company, you should expect to pay less for these components as a franchisee than if you purchased them as a sole proprietor.
At the high end of franchisor build-out assistance are those companies with design groups who help the franchise design the store, sometimes with such high-tech devices as CAD (computer-aided design) systems. Also, some franchisors will even hire a construction team to do the build-out and then deliver the components right to the new business.
Initial Training
The majority of franchised businesses do not require a new franchisee to have previous industry experience, primarily because they believe they can train a person with good business acuity to run the business successfully. A good training program is therefore essential. Most franchise companies will bring the franchisee to corporate headquarters for classroom training and some will allow time for hands-on training at a nearby franchise unit or corporate store.
This initial training should cover all aspects of the operations of the business, including book-keeping, record-keeping, operations, recruiting and retaining employees, and finding customers. The franchisee should receive an operations manual and get answers to any remaining questions she may have so that she feels confident she will be able to get her business up and running.
Some franchisors will provide corporate or field personnel to work side-by-side with the franchisee during grand opening and during the first week of operations, ensuring the franchisee has mastered the training and achieves a comfort level with the business. Franchisors that are willing to train a franchisee’s manager along with a franchisee are providing a value-added service.
On-going Training and Assistance
A good franchise business will continue to improve and evolve with time and the addition of new units and on-going training is often a necessity. Similarly, a good franchisor will offer continuing educational opportunities to franchisees as well as providing on-going assistance as needed. Many franchisors provide a help-line for issues that come up in the field and some will make regular visits to the franchisee’s location. A company that provides conferences or other opportunities for a franchisee to connect with fellow owners has the best interests of their franchisees in mind as these opportunities allow for creative problem-solving, the sharing of best practices and can reenergize the business focus.
Marketing Expertise
Your franchisor should provide you with a complete marketing plan for your new business that covers grand opening through at least the first 3-6 months. Since the franchisor has every reason to want you to succeed, a savvy franchisor will do much more. Many will provide you with the actual marketing materials, professionally produced. These may include pieces such as posters, banners, direct mail postcards, newspaper ads, and maybe TV and radio spots, all of which can be customized for your location.
Permits, Compliances and Other Legal Issues
Depending on the type of business, you may also need assistance in dealing with local governmental agencies for various permits. If your franchise involves food or beverage, there are numerous health-code compliance issues you will need to handle. Your franchisor should provide help in these areas so that your opening is not held up waiting for permits to come through.
There are several ways to find out how the franchisor handles these support items. The first, of course, is that you will want to ask questions about each as part of your investigation into the business. The second step is to talk to existing franchisees about the support they received and how well prepared they were to open and run the business.
Be sure to ask these franchisees if they felt there was anything missing from the training and support they received and if there is anything they wish had been more complete or done differently. If the company you are investigating scores well with these franchisees, you can be confident you will be happy with the support they will provide to you.
Kimberley Ellis is the President of Bison.com, a leading online resource for franchise and business opportunities. She has been quoted as an industry expert in USA Today, Wall Street Journal and a variety of local and regional publications regarding trends in business and franchising. Kim combines her entrepreneurial spirit with a diverse background in marketing and operation to help others succeed in franchising.
In the early days of franchising, the relationship between franchisors and franchisees was a lot less complicated and less sophisticated, and the franchise agreement was a lot less vague than it is now. Today many franchisors limit what they offer to franchisees within the franchise agreement. The reason for this lack of specific clauses is because franchisors fear franchisees will demand more from their franchise agreement if more clauses are added in the agreement at the begining of negotiations.
So what does this mean for potential franchisees and what general clauses should they expect to be positioned within the franchise agreement?
1. Training
It is essential in franchising, that franchisors must provide training for new franchisees in how to operate the franchised business. This obligation to train must continue beyond initial training, so that franchisors are obliged to provide continuing and further support to franchisees during the continuation of the franchise agreement. This must be stated in the franchise agreement from the beginning…
2. Protection
Franchisees pay franchisors for the right to use the franchisor’s intellectual property such as the trade name, trade marks, know-how, copyright, business system and so on. A balance has to be struck between what is necessary, desirable or practicable for the interests of the franchisor, the franchisee and the franchised network as a whole.
Franchise agreements should contain provisions relating to branding/trademarks and its portection (for example, taking court proceedings against infringers of franchisor’s intellectual property) so that prospective franchisees can make a decision, as to whether such provisions are acceptable to them or not.
3. Support
Crucial to any successful franchised operation is the level of support a franchisor gives to its franchisees in its operation of its franchised business. This after all is one of the things franchisees pay for.
Therefore there should be a positive obligation on the part of the franchisor to provide such support as a franchisee may require from start to finish. The level of support however, will vary from one franchisor to another. The best advice here is to state clearly what support is offered by the franchisor, and if there is a possibility of continual support.
4. Improvements
One of the fundamentals to any franchisor/franchisee relationship agreement is the on-going improvement of services, products and the business system itself which is implemented from the start of the franchise agreement.
One of the principal obligations of franchisees is to sell goods or services which are the subject of the franchise, not to develop them. It is up to the franchisor to think of improvements for the business and to implement these changes with the help and assistance of the franchisee. At the beginning of the franchise business, improvements to the business system must come from the franchisor.
5. Quality Control
Different franchisors have different methods of ensuring that quality is maintained throughout their franchised network. Before franchisors can do this they must be sure of the quality of their own system, products, services, staffing and so on. This is best achieved by demonstration, and these days very few if any franchisees will buy a franchise without having first proven the business system works effectively.
Having established a high quality business system, the franchisor must also state in the franchise agreement, that all franchisees must meet the standards of quality put in place. This ensures that high standards of quality are met and the business system can run more smoothly.
6. Advertising marketing and promotions
This is the last obligation, and one in which not everyone will agree to. Some feel that the obligation to provide advertising marketing and promotions of the franchise, at least at the national level, should be that of the franchisor.
Much depends on the nature of the business. In some cases franchisors are content to leave it to the franchisees and feel that their franchised business would benefit little, by any form of national advertising.
Other franchise systems are increasingly reliant on national advertising and marketing campaigns, and promote such campaigns in a consistent way that involves the entire franchise network.
In essence, PR and Marketing is generally regarded as a beneficial campaign for the effective promotion of the business system, and most franchisors will obligingly manage campaigns on behalf of the franchisees.
In other cases, the franchisor may enable localized campaigns to be conducted and managed by the franchisees themselves. Once again, this obligation on the part of the franchisor will be mentioned within the franchise agreement.
There are many more “obligations” by which a franchisor should help a franchisee operate a franchise system successfully. It is up to the franchisee to study carefully the clauses within the franchise agreement to understand fully the consequences involved within running a franchise business before signing on the dotted line…
If you have any more obligations a potential franchisee should be made aware of it, please feel free to leave a comment.
Aine Meade is a Website Editor for Franchise Direct, a leading Internet franchise advertising portal. Aine creates high quality franchise information for its international websites in the U.S., and Europe. Aine has a BA (First) in English and History; MA in Literature & Publishing; Diploma in Media Journalism and a Diploma in Marketing.