50 Franchising Tid Bits
Below we have listed for your information 50 important Franchising Topics for your informed consideration:
Seventeen Important Facts Concerning Franchising:
For the individual business owner, there are definite advantages to franchising, some of which are outlined in the list below…
- Well-known trademark, either regionally or nationally, and its cumulative goodwill - saving the business owner the cost of creating and advertising a name that customers already recognize.
- Established business framework - minimizing the startup problems and guesswork involved in starting a new business.
- Well-tested sources of supply and service - saving time and trouble in finding suppliers of needed products and equipment.
- Ongoing sales and marketing assistance - franchisors have proven, existing, and successful systems of advertising and marketing.
- Financial assistance - banks and similar lending institutions are willing to lend money to a business that has the backing of a successful franchisor. Most franchisors have direct financial assistance or help in finding adequate sources of financing.
- Reduction of risk - you are buying into an established concept so the risk of failure is lower.
- Ongoing research and development - most franchisors constantly research and look into vital information such as competition, product demand, seasonal variations, and community attitudes.
- Site selection and business support - the franchisor helps with selecting a suitable site location, building construction design and supervision, employee training, and operational support.
- Proven operating methods and procedures for creating and selling the product.
- Standard quality, uniformity, and desirability of the franchisor's product or service.
- Collective buying power and centralized purchasing system - Franchises may be able to purchase supplies at a reduced cost since the franchisor can purchase in bulk and pass the savings to the franchisees.
However, despite the advantages to franchising, buying or starting a franchise business is not for everyone. Some of the disadvantages to franchising are discussed in the list below…
- Loss of control and freedom - since the franchisor's standards have to be adhered to, a franchisee may have limited scope for individual personal initiative.
- Ongoing royalties could be as high as 10% (or more) of revenues - this amount could determine whether you business is profitable or not.
- The initial franchise fee can be quite substantial. It can range anywhere from $4,000 to $20,000 and, in some cases, up to $50,000!
- Advertising fees - there is usually a fee for advertising on a regional or national basis. If the franchisor does not make the best use of your advertising dollars, this could be a waste of money.
- Required Signage - most franchisors have a developed sign package that the franchisee is required to purchase. This can be very expensive for the small business owner.
- The franchisor's problems are also your problems - for example, you could have a serious issue if there was a conflict between the franchisor and a major supplier.
In summary, despite the disadvantages of owning a franchise business, it generally offers real advantages with considerably reduced risks over going it on your own. All Franchises are not created equal and research and care should be taken before starting or buying any franchise business..!
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Sixteen Legal Issues Involved When Considering a Franchise Business:
One of the most important events in franchising is the introduction of the Franchise Rule on October 21, 1979 by the Federal Trade Commission (FTC). The FTC Franchise Rule requires all franchisors operating anywhere in the U.S. to make full disclosure of the facts that a prospective franchisee needs to have in order to make an informed decision about whether or not to invest and begin a new franchise business…
Most important, the disclosure rule requires that the franchisor provide information about:
· The franchisor and its affiliates, describing the business experience of each of its officers, directors, and management personnel responsible for franchise services, training, and other aspects of its program.
· Any lawsuits or previous bankruptcies in which the franchisor, its officers, directors, and management personnel have been involved.
· Initial franchise fees and other payments required for obtaining a franchise, and a description of continuing payments to be made after the franchise opens. Any restrictions on the quality of goods and services used by the franchisee and where they may be purchased, including restrictions requiring purchases to be made from the franchisor or its affiliates.
· Any assistance available from the franchisor or its affiliates in financing the purchase of the franchise.
· Restrictions on the goods or services franchisees are allowed to sell and any restrictions on the customers with whom they may deal.
· Any territorial protection to be granted the franchisee.
· The conditions under which the franchise may be repurchased or refusal renewal by the franchisor, transferred to a third party by the franchisee, and terminated or modified by either party.
· Any training programs provided to the franchisees.
· Any involvement of any celebrity or public figures in the franchise.
· Any assistance provided by the franchisor in selecting the site for the franchisee.
· The number of present Franchises, Franchises projected for the future, Franchises terminated or not to be renewed, and the number repurchased in the past.
· The financial statements of the franchisors.
· The extent to which franchisees must personally participate in the operation of the franchise.
· The basis for any earnings claims made to the franchisee, including the percentage of existing Franchises that have achieved the results claimed.
· The names and addresses of other franchisees.
· This disclosure must occur at the first contact with the franchisor, franchise broker, or anyone who represents the franchise for sale, where the subject of buying a franchise is discussed. The disclosure must be at least ten business days before the signing of any franchise or related contract or payment to the franchisor.
Although the FTC does not require registration from franchisor, several states do have registration rules requiring franchise sellers to register. Most states have adopted the Uniform Franchise Circular Offering (UFOC) guidelines for their disclosure requirements, but as a potential franchisee, do not assume that if a franchise is registered with the state or provides some type of full disclosure document, you are protected from the possibility of a failure, there are no guarantees…
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Eighteen Necessary Facts You Should Know When Considering a Franchise:
Has your attorney studied the franchise contract, discussed it completely with you, and do you both approve it without reservations?
Does the franchise require you to take any steps which are either illegal or even border on illegal, or are otherwise questionable or unwise in your state, county, or city?
Does the franchise give you an exclusive territory for the length of the franchise period, or can the franchisor sell a second or third franchise in your territory?
Is this franchisor connected in any way with any other franchise company handling similar products or services?
If you answered yes to the above question, what is your protection against the second franchising company?
Under what circumstances can you end the franchise contract, and at what are the costs to you?
If you sell your franchise, will you be compensated for your goodwill or will it be lost?
How many years has the company offering you the franchise been in operation?
Does the company offering you this franchise have a reputation for honesty and fair dealing among its franchisees?
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?
Will the franchisor assist you with: a) A management training program; b) An employee training program; c) A public relations and advertising program; d) Capital; e) Credit; f) Merchandising ideas?
If needed, will the franchisor assist you in finding a suitable location?
Is the franchising firm adequately financed so that it can carry out its stated plans?
Does the franchisor have experienced management, trained in-depth?
Exactly what can the franchisor do for you that you cannot do for yourself?
Has the franchisor investigated you carefully enough to assure itself that you can successfully operate at a profit to both of you?
Does your state have a law regulating the sale of Franchises, and has the franchisor complied with that law to your satisfaction?
How much equity capital will you need to purchase the franchise and operate it until your income equals your expenses?
Recent business surveys show that fewer than 20 percent of all new franchised businesses fail. This is in comparison to a 60 to 80 percent failure rate for all new businesses started in this country each year…
Remember to go forward armed with the knowledge and facts necessary, and your success will be assured, good luck to you in your new business …
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We would also like to provide you with some other valuable resources:
The U.S. Small Business Administration (SBA) provides financial, technical and management assistance to help small business owners start, run, and grow their businesses. http://www.sba.gov/
There are a total of 58 Small Business Development Centers (SBDC) in the U.S., administered by the SBA, that provide management assistance to current and prospective small business owners. SBDCs offer one-stop assistance to small businesses by providing a wide variety of information and guidance in central and easily accessible branch locations.
The Score Association is a group of retired executives dedicated to helping in the formation, growth, and success of small businesses. This is a great resource for free counseling and advice. http://www.score.org/
U.S. Business Advisor is a one-stop electronic link to the information and services of over 60 federal government organizations that provide for the business community. http://www.business.gov/
Franchise Buyer Guide is a on on-line directory of various franchise categories that provide information on over 50 franchise opportunities. http://www.franchisebuyerguide.com/
CPA directory™ is the largest on-line database of Certified Public Accountants and is a great resource for business tax information. http://www.cpadirectory.com/
The Internal Revenue Service has valuable up-to-date tax information for businesses.