11 Things You Need To Know About Buying A Franchise
11 Things You Need To Know About Buying A Franchise
Know Your Rights as a Potential Franchisee
Before you begin to investigate the possibilities of purchasing a franchise it might be important to you to know that you have rights. The Federal Trade Commission strictly prohibits franchisors from doing certain things that may put pressure on you to make an immediate decision. Franchise regulations require a franchisor to provide you with full disclosure of their business opportunity in the form of an offering circular referred to as a Uniform Franchise Offering Circular. This document must comply with regulations governing the offering of a franchise. In addition, the franchisor is required to allow you 10 business days to review the document before they can require any payment of fees or signing of a franchise agreement. Any franchisor that violates these requirements can be subject to penalties, fines or prospecution. Also, you might reside in a State where there are laws that the franchisor must comply with.
The Success of Franchising
The success of franchising is unquestionably tremendous. This is due to a number of reasons. The major reason is franchisors are very selective in who they award a franchise too. Most franchisors have a profile of who the franchise candidate will be and if you fit the profile your changes of qualifing increases. No other business mood has the success of franchising. According to the U. S. Department of Commerce, the failure rate of franchising is less than 4%.
Two Types of Franchisors
The two types of franchisors are simply mature and infant. A mature franchisor has years of experience in franchising and their network is proven, tested, tried and have franchisees who will testify to the value of the franchise business. While an infant franchisor is someone who is just getting started in their franchise venture and may not have all of the tools and techniques in supporting a franchise network in place yet. This is not to say an infant franchisor is not a good purchase. Keep in mind that all franchisors started as an infant franchisor. There are many advantages in purchasing from an infant franchisor.
Two Types of Franchises
The two types of franchises are simply investment and job franchises. An investment franchise is a business that can possibility be an absentee owner that creates equity in the business within a short period of time. An example might be a fast food franchise. These franchises are often more expensive but can be very valuable over a period of time. The job franchise is where the franchisor is offering a business that allows the owner to enter a business that produces daily income. Usually this is a service business.
Full Disclosure
The decision to purchase a franchise business can be an exciting and rewarding decision.
There are many franchises, which offer to the buyer, opportunity, independence, growth, challenges, a comfortable income, prestige and security. However, many important questions need to be answered, both of you and by the franchisor before making any commitment to buy. The franchisor is required by the Federal Trade Commission (FTC) to furnish a potential buyer with a full disclosure document at the first personal meeting. This disclosure will contain information concerning the material facts about the franchisor. Such things as: the business background of the franchisor; who the officers, directors and key personnel are; the initial fees and cost of getting into the business; various obligations of both the franchisor and franchisee before and after the business is opened; the terms and conditions of the franchise; a copy of the actual franchise agreement; and many other matters that are important to your decision.
Never rely on verbal commitments or promises from a franchisor or franchise broker.
Get everything that may be interpreted as a promise in writing, especially if the promise, projection or commitment is not in the franchise agreement.
It is important to understand that a franchise is a contractual relationship.
What you buy when purchasing a franchise is an agreement. Most people believe the franchise to be the brick and mortar, the concept or idea that is being offered as an investment, the operations of the business or a variety of other things that only describe the franchise. In every franchise sold, a contractual relationship is formed between the franchisor and franchisee, which may be binding for, as many as twenty years or more. The value or worth of the franchise business will be determined by what is contained in the agreement. Too many buyers get caught up in the “dog and pony” show, while all excited by the “horns, whistles and sirens” going off or paying too much attention to the “sizzle” of the business. Don’t overlook the fact that you are buying an agreement and you must be able to live that agreement.
Study the agreement very carefully.
Know and understand what it says. Anything you don’t understand should be explained to you in writing. Don’t rely on verbal interpretation or explanations. If the agreement doesn’t say it and the basic disclosure document don’t address it, don’t be fooled into believing what someone might verbalize to you.
Franchise agreements are usually not negotiable.
The primary reason that franchise agreements are not negotiable is because they need to be uniform. That is to say, everything franchisee is offered the same thing. However, this may vary with an infant (a new franchising company) franchisor. An infant franchisor is one who has just begun offering his franchises and may not have his first franchisee yet. To induce or entice the first franchisee, the franchisor may reduce or even waive the franchise fee, offer lower royalty fees, or make available additional franchise agreements at a bargain price. However, the basic disclosure document should indicate whether or not the agreement is uniform.
Another very important area to be considered is the background of the officers, directors and key personnel of the franchisor.
In most new franchise offerings, the business experience of the franchisor may be limited. You must evaluate and determine whether or not you can be properly trained, supported and benefit from the management of the franchisor. Since as many as 50% to 60% of all new franchise businesses entering the franchise arena do not have company operations or prototypes, you will need to investigate the knowledge, experience, background and credentials of the people behind the franchise business very closely. You will want to know whom you will be involved with for the next twenty years or more.
If the business being offered has existing franchisees, take the time to contact as many of them as you can.
Ask such questions as: are you satisfied with your franchise?; has the business lived up to your expectations?; did you receive the type of training you expected?; are you satisfied with the support you are receiving?; is the business making the kind of income you expected? And can you recommend the business to me? Listen very carefully to the answers that are given to you. Is there still excitement in the voice of the franchisee? What is the franchisee really saying to you?
Capital:
You will need seed money of your own plus sufficient cash to maintain a positive cash flow for at least the first year. In a future session you will learn how to forecast future cash requirements through cash flow control. Many businesses can be started on a very small scale with a small investment. Then, as the business grows and you gain experience, cash flow from your business can be used for growth. In some cases you don't need starting capital to hire other people because you might start by doing everything yourself. The "do it yourself" start is a good way to learn everything about your business and also makes you better qualified to delegate work to others later on. You can control your risk by placing a limit on how much you invest in your business.
11 Things You Need To Know About Buying A Franchise - To learn more about this author, visit Ken Hollowell's Website.
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11 Things You Need To Know About Buying A Franchise
Know Your Rights as a Potential Franchisee
Before you begin to investigate the possibilities of purchasing a franchise it might be important to you to know that you have rights. The Federal Trade Commission strictly prohibits franchisors from doing certain things that may put pressure on you to make an immediate decision. Franchise regulations require a franchisor to provide you with full disclosure of their business opportunity in the form of an offering circular referred to as a Uniform Franchise Offering Circular. This document must comply with regulations governing the offering of a franchise. In addition, the franchisor is required to allow you 10 business days to review the document before they can require any payment of fees or signing of a franchise agreement. Any franchisor that violates these requirements can be subject to penalties, fines or prospecution. Also, you might reside in a State where there are laws that the franchisor must comply with.
The Success of Franchising
The success of franchising is unquestionably tremendous. This is due to a number of reasons. The major reason is franchisors are very selective in who they award a franchise too. Most franchisors have a profile of who the franchise candidate will be and if you fit the profile your changes of qualifing increases. No other business mood has the success of franchising. According to the U. S. Department of Commerce, the failure rate of franchising is less than 4%.
Two Types of Franchisors
The two types of franchisors are simply mature and infant. A mature franchisor has years of experience in franchising and their network is proven, tested, tried and have franchisees who will testify to the value of the franchise business. While an infant franchisor is someone who is just getting started in their franchise venture and may not have all of the tools and techniques in supporting a franchise network in place yet. This is not to say an infant franchisor is not a good purchase. Keep in mind that all franchisors started as an infant franchisor. There are many advantages in purchasing from an infant franchisor.
Two Types of Franchises
The two types of franchises are simply investment and job franchises. An investment franchise is a business that can possibility be an absentee owner that creates equity in the business within a short period of time. An example might be a fast food franchise. These franchises are often more expensive but can be very valuable over a period of time. The job franchise is where the franchisor is offering a business that allows the owner to enter a business that produces daily income. Usually this is a service business.
Full Disclosure
The decision to purchase a franchise business can be an exciting and rewarding decision.
There are many franchises, which offer to the buyer, opportunity, independence, growth, challenges, a comfortable income, prestige and security. However, many important questions need to be answered, both of you and by the franchisor before making any commitment to buy. The franchisor is required by the Federal Trade Commission (FTC) to furnish a potential buyer with a full disclosure document at the first personal meeting. This disclosure will contain information concerning the material facts about the franchisor. Such things as: the business background of the franchisor; who the officers, directors and key personnel are; the initial fees and cost of getting into the business; various obligations of both the franchisor and franchisee before and after the business is opened; the terms and conditions of the franchise; a copy of the actual franchise agreement; and many other matters that are important to your decision.
Never rely on verbal commitments or promises from a franchisor or franchise broker.
Get everything that may be interpreted as a promise in writing, especially if the promise, projection or commitment is not in the franchise agreement.
It is important to understand that a franchise is a contractual relationship.
What you buy when purchasing a franchise is an agreement. Most people believe the franchise to be the brick and mortar, the concept or idea that is being offered as an investment, the operations of the business or a variety of other things that only describe the franchise. In every franchise sold, a contractual relationship is formed between the franchisor and franchisee, which may be binding for, as many as twenty years or more. The value or worth of the franchise business will be determined by what is contained in the agreement. Too many buyers get caught up in the “dog and pony” show, while all excited by the “horns, whistles and sirens” going off or paying too much attention to the “sizzle” of the business. Don’t overlook the fact that you are buying an agreement and you must be able to live that agreement.
Study the agreement very carefully.
Know and understand what it says. Anything you don’t understand should be explained to you in writing. Don’t rely on verbal interpretation or explanations. If the agreement doesn’t say it and the basic disclosure document don’t address it, don’t be fooled into believing what someone might verbalize to you.
Franchise agreements are usually not negotiable.
The primary reason that franchise agreements are not negotiable is because they need to be uniform. That is to say, everything franchisee is offered the same thing. However, this may vary with an infant (a new franchising company) franchisor. An infant franchisor is one who has just begun offering his franchises and may not have his first franchisee yet. To induce or entice the first franchisee, the franchisor may reduce or even waive the franchise fee, offer lower royalty fees, or make available additional franchise agreements at a bargain price. However, the basic disclosure document should indicate whether or not the agreement is uniform.
Another very important area to be considered is the background of the officers, directors and key personnel of the franchisor.
In most new franchise offerings, the business experience of the franchisor may be limited. You must evaluate and determine whether or not you can be properly trained, supported and benefit from the management of the franchisor. Since as many as 50% to 60% of all new franchise businesses entering the franchise arena do not have company operations or prototypes, you will need to investigate the knowledge, experience, background and credentials of the people behind the franchise business very closely. You will want to know whom you will be involved with for the next twenty years or more.
If the business being offered has existing franchisees, take the time to contact as many of them as you can.
Ask such questions as: are you satisfied with your franchise?; has the business lived up to your expectations?; did you receive the type of training you expected?; are you satisfied with the support you are receiving?; is the business making the kind of income you expected? And can you recommend the business to me? Listen very carefully to the answers that are given to you. Is there still excitement in the voice of the franchisee? What is the franchisee really saying to you?
Capital:
You will need seed money of your own plus sufficient cash to maintain a positive cash flow for at least the first year. In a future session you will learn how to forecast future cash requirements through cash flow control. Many businesses can be started on a very small scale with a small investment. Then, as the business grows and you gain experience, cash flow from your business can be used for growth. In some cases you don't need starting capital to hire other people because you might start by doing everything yourself. The "do it yourself" start is a good way to learn everything about your business and also makes you better qualified to delegate work to others later on. You can control your risk by placing a limit on how much you invest in your business.
11 Things You Need To Know About Buying A Franchise - To learn more about this author, visit Ken Hollowell's Website.
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John PowerJohn Power, founder of Biltmore Franchise Consulting, has extensive experience developing and marketing franchises and business opportunities. He has been in and around franchising for over twenty years. From 1980 through 1990 he conceptualized, organized, and developed the American Video Association. He grew AVA to 2,000 national members, before selling the company it 1990. It was later merged into another home video marketing company. From 2000 to 2005 he worked as a contract marketing and human resources consultant to several local and national companies. In 2005 Mr. Power began working as a franchise development consultant on a full-time basis. Since that time he has helped more than three dozen companies initiate and develop their franchising program. He notes that there are many companies interested in developing a franchise program, and who need his specialized assistance. Mr. Power is a “hands-on” franchise consultant. He said, “I am the ‘nuts and bolts’ person who tends to the details for my clients.” Mr. Power holds a B.S. degree with a major in Marketing. See: www.biltmorefranchise.com You may contact Mr. Power at: jpower@biltmorefranchise.co - Visit John Power's Website |
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Anne BarrAnne Barr has over 26 years experience in sales and marketing, six years as a franchisee. She has assisted over 367 business owners and purchasers to achieve their goals in career change, transition and exit strategy. She holds the designation of Certified Franchise Executive from the International Franchise Association, Certified Business Intermediary from the International Business Brokers Association and Board Certified Broker from the Texas Association of Business Brokers. Anne is active in professional organizations, networking groups and volunteers for non-profit entities. As owner/operator of four successful businesses, Anne has proven people skills and enjoys helping clients find the right "fit" in business ownership. Visit www.FranchiseOpportunitySpecialist.com for more information about me and my company. - Visit Anne Barr's Website |
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Staging DivaDebra Gould, aka The Staging Diva®, is President of Six Elements Inc., an internationally recognized home staging company. Inspired by many requests from aspiring home stagers wanting to start similar businesses, Gould created the Staging Diva Home Staging Business Training Program. Gould has trained over 1000 Staging Diva Graduates worldwide to start staging businesses. Buying decorating and selling six of her own homes in four years lead to an interest in real estate staging which she turned into a career with the launch of sixelements.com in 2002. Since then she has staged hundreds of homes in addition to teaching home staging training. Gould is the author of several home staging resources including a series of popular ebooks made up of a Design Guide, Color Guide and Portfolio Guide. For more information about Debra Gould visit stagingdiva.com. - Visit Staging Diva's Website |
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John BrennanJohn Brennan Ed.D. Dr. Brennan is President of Interpersonal Development, LLC, a training and development firm. Interpersonal Development has provided sales training and coaching to more than 3,000 sales reps from over 100 companies. A native of Australia, Dr. Brennan received his doctorate from the University of Rochester. His dissertation researched the effectiveness of Behavioral Modeling Technology in training people in interpersonal skills. While he has spent most of his career designing or delivering training, he was also a Vice-President of Sales of a training and development franchise with operations in 25 markets. Dr. Brennan has designed and delivered sales training in North America, Asia, Europe, Australia and the Middle East. He has been a guest speaker at numerous national and regional professional conferences. When Microsoft wanted Best Practices articles on sales for their web site, they called Dr. Brennan. The results are at http://office.microsoft.com/en-us/FX011387391033.aspx His firm’s clients have included Volvo, The Prudential, Merrill Lynch, Eastman Kodak, Gannett, Equifax Europe, the Economist Group and countless small businesses. - Visit John Brennan's Website |
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Jay Kubassek(Jay's Full Bio: EvanCarmichael.com/jaykubassek) In five years, Canadian-born entrepreneur Jay Kubassek went from selling mufflers at a Midas franchise to revolutionizing Internet marketing with the 2004 launch of CarbonCopyPRO, a online marketing education company, now worth over $20 million with customers in over 160 countries.
As an independent film producer, his upstart film fund Aliquot Films is currently producing a films with Spike Lee and Abel Fererra (starring Ethan Hawke and Dennis Hopper.)
Jay's entrepreneurial spirit is irrepressible. He’s the owner of five companies, a professional speaker and trainer, international real estate developer/investor, extreme sport enthusiast and emerging philanthropist. Jay resides in NYC with his wife Jamie, son Milo and dog Cooper. Visit Jay's official website: www.JayKubassek.com - Visit Jay Kubassek's Website |
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