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Franchise Law
Why purchase a franchise?
Benefits: By law the franchisor (seller) has to supply
a purchaser with certain information that a seller of
a non-franchised business does not have to supply. A
history of the franchisor and its principles, an estimate
of how much it will cost to make the investment as well
as the price of the investment, how many times the franchisor
has been sued and by whom and for what, and the name
and address of all other franchisees, including those
that have left the system. From the information the
average gross earnings of the franchisees can be determined.
You can own one or more usually, you can control territories.
It has worked very well for very many people. If others
are successful it is a pretty good indication that if
you Follow The System, you will be successful also.
Drawbacks:
Once a person buys in, the person is tied for the term
of the deal.
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You will find that if the trademark is not
strong, there is very little benefit to the franchise, and
you will resent the royalty payment because most businesses
are not ingenious and you will think you can do it on your
own. Franchisors tend not to do very much for the franchisee
once the franchise is sold and the franchisor is mainly interested
in getting the royalties paid on time.
There is no equity in franchise ownership. The longer you
are in the more the value goes down unless the franchisor
is strong i.e. has a strong recognizable trademark.
Franchise agreements are one sided in favor of the franchisee
and unless you have good representation from a knowledgeable
person going in, it will be too late to change after you sign.
Even when you leave the system you will not be able to do
a similar business for a while because you will be required
to agree to that before you get in.
How to purchase a franchise
Plan: This is an important decision, especially if this is
a first time purchase. Give yourself some time to investigate
the thousands of opportunities. Budget some expense money
for travel, for attorneys, and for accountants to help in
the decision process. Select a business you like to do, or
something you might have an interest in and check it out.
Criteria: The more mature the franchise, the more likelihood
of success there will be. Franchise ownership is not the way
to instant millions. It is a way to experience self employment
on a controlled scale. Many franchise opportunities are only
profitable if you own two or three outlets. If the franchisor
has little or no business experience in franchising, the price
should reflect. If the brand is a strong recognizable mark, that is good. Conversely if there is no such asset, it is not
advisable to pay a lot to buy the use of the marks.
Business Deal: The franchisor is not your buddy. It is in
business to make itself money not you. Just remember that
fact. If there are promises made by the franchisor or its
agent, and those promises are not in the written franchise
agreement, it is as if the promised were never made. Deal
fairly but at arms length an you will be well served.
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