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13. Franchises  

Resources

If you're considering buying a franchise, consider taking a workshop or reading extensively about the pros and cons of franchising before you begin shopping. Once you are operating a franchise, it's important to keep abreast of trends in your industry, changing legal regulations and other franchising issues.

SBA Franchise Workshop

The Small Business Administration (SBA) offers a self-guided workshop (.pdf) for those who are considering buying a franchise.

Associations and Forums

Federal Regulations

The Federal Trade Commission's (FTC) Franchises and Business Opportunities Web pages contain federal guidelines and other information potential franchisee need to know.

Strategy

Pre-Purchase Detective Work

In addition to the routine investigation that should be conducted prior to any business purchase, potential franchise buyers should be able to contact other franchisees before deciding to invest. They should also obtain a uniform offering circular containing vital details about the franchise's legal, financial and personnel history before signing a contract.

Reasonable Expectations

  • Before signing, franchisees should make sure they will have the right to:
  • use the franchise name and trademark
  • receive training and management assistance from the franchisor
  • use the franchise's expertise in marketing, advertising, facility design, layouts, displays and fixtures
  • do business in an area protected from other competing franchisees.

In some cases, the franchisee may negotiate to have the franchisor help obtain building permits, purchase or lease equipment, signs and supplies, and construct or remodel the business premises.

Possible Pitfalls

The contract between the two parties usually benefits the franchisor far more than the franchisee. The franchisee is generally subject to meeting sales quotas, and is required to purchase equipment, supplies and inventory exclusively from the franchisor. The franchisor often has the right to terminate the franchise if it fails to operate the business according to the agreement, becomes delinquent on royalties or violates other contract specifications.

Professional Help

The tax rules surrounding franchises are often complex, and an attorney, preferably a specialist in franchise law, should assist the prospective franchisee to evaluate the franchise package and tax considerations. An accountant may be needed to determine the full costs of purchasing and operating the business, as well as assess the potential profit to the franchisee.

Buying a Franchise

For those looking to purchase an existing business, buying into a franchise can be an attractive option. While franchisees have the highest survival rate of any type of business startup, the operational and financial restrictions on franchisees are greater as well. Franchise law is a complicated and highly specialized area, and it is essential to enlist the services of a qualified attorney throughout the entire process.

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