Pros and Cons of Buying a Business Franchise

According to the International Franchise Association, there are more than 7 million people employed within franchises around the world. Likewise, a new franchise opens up every 8 minutes in the United Stated. By those numbers and additional research, analysts have establishes that one in twelve businesses is an established franchise. This is due to a growing boom in entrepreneurship - mainly among those who are not satisfied in pursuing a degree that puts them to work directly under a supervisor. The boom in franchises is also expected to continue... but is owning a franchise the right choice for you?

The Pros of Buying a Business Franchise

A Franchise is Turnkey - In many cases, an established corporation has a development and deployment plan in place for a business franchise to ensure that it operates properly and profits. While there are things you need to do to get some franchises off the ground, they come with a written success model - like a treasure map to retirement.

Business Franchise Support - A person opening a small business for the first time on their own is likely to have to learn as they go. This means a lot of stumbling and learning from mistakes. When you buy a business franchise you become part of a network. You're in business for yourself but you're never by yourself.

The Power of the Brand - For establishes companies, brand awareness can almost guarantee success when the proper research is done and you open in the right market. This can account for a lot of savings on the marketing relating to launching and opening a new business franchise

Lower Inventory for Business Franchises -Big brands have a lot of buying power, and that collective buying power often means great discounts with vendors that would love to have the business of your brand, including everything from common inventory to food and equipment. A new small business often has less bargaining power because you need them more than they need you.

Cons of Buying a Business Franchise

Less Freedom - When you open a small business of your own, you get to decide how everything rolls along. The business is truly yours. When you buy a franchise, it's -mostly- yours. You have to report financial information and conform to the uniform corporate procedures and strategies though some give you leeway and creative freedom to a point.

Royalty Payments - Every business franchise is required to make payments to the parent company to support the operations and advertising supplied by the corporate brand. What you receive for your royalty payments - such as support and marketing - varies from company to company.

Higher Start-up Costs - In many cases it can be more expensive to purchase a business franchise because you need to go all in with your investment and corporations typically have a minimum amount of capital that you're expected to have on hand - not in assets - in order to get started. A new business owner starting from scratch however might be able to trudge along by their bootstraps as they grow their business.

Communication Problems - This can occur when you're in a franchise and you have to deal with corporate regulations and problem solving. Some franchisors may not be able to supply the field support you may need which can lead to problems in your franchise. If you open your own business the only person you need to count on is yourself.

Buying a business franchise works best for individuals who are able to lead but still function best as part of a team. Careful consideration should be given to buying a business franchise, including research into the potential companies and markets that hold your interest.

Looking For a Carpet Cleaning Business Franchise?

It appears that any person thinking about starting their own carpet cleaning business today will probably at one point or another consider a franchise. All things considered it just seems to make sense to benefit from the experience of other people. The franchise is additionally appealing since most of the time the new business owner will have immediate name recognition and business assistance.

The field of carpet cleaning has numerous franchise businesses to take into account. The problem is that when researching a certain franchise for a buddy, I really could not find any genuine review which could not be attributed to somebody marketing a specific franchise. So I guess it's time to provide an independent view of carpet cleaning franchise enterprises in general. Whatever the name of the franchise is, all of them have some things in common which a person must evaluate prior to accepting any contractual agreement.

First: why do potential business owners think about a franchise? In most cases an honest individual will claim its the name recognition or sensation of safety of being linked to a sizable business franchise. However in actuality, quite a few feel they'll never be able to compete against the big franchise businesses so they may as well join them. We will consider the real truth of this later, but what does joining a carpet cleaning franchise truly include?

Any kind of franchise business is founded on the experience and business plan of the former of the franchise. This might seem great but logically think about what that will mean just about the service itself of carpet cleaning. For instance: if a franchise has created a company using high priced truck mount carpet cleaning machines you know what your own kind of cleaning will include? Of course you'll need to possess the same apparatus whether its marketed directly from them or using their resources. The point that somebody not used to the field will not appreciate is the fact that cleaning technology has advanced by a lot during the past five years alone. Some of those truck mount operations can cost anywhere from $75,000 to $135,000 and even more and a lot of honest and knowledgeable operators will confess they do not provide the most effective service. If you notice in advertising and marketing, more and more commercials talk about making use of multiple methods of cleaning. That is because a lot of us in the field have stopped using the truck mounts years ago and started making use of newer and much less costly equipment. I've heard of guys through the country that have their truck mounts in the garage where they now concentrate on low moisture cleaning. Now the problem is the franchise nevertheless calls for exactly the same products they've used for the last twenty years.

This applies to any products used by a franchise. A few call themselves dry cleaning, low moisture, chemical cleaning, natural cleaning and on and on. The point is the fact that buyer of a franchise is going to be tied to any cleaning method, cleaning materials and machines employed by that franchise. Although you may come across something which supplies far better results, you'll be hesitant to change. Naturally, generally you need to obtain your materials and equipment through the franchise and in some cases if not, you are still stuck with their equipment.

The franchise operations usually demand a specific regular payment dependent on a percentage of your business also. They claim that insures your legal rights and marketing costs on a national level. This could be legitimate but just how will you feel writing a check out to your franchise at the end of every month when you did all the actual physical work? After decades in the business I have come across a lot of men who dropped out of their franchise agreements to go it alone. The issue with that is they are still stuck with unneeded machines and supplies in most cases.

As stated earlier, many are searching for name recognition and security when joining a franchise. Coming from my experience and that of many of my contacts, a good business plan will serve you far better. Keep in mind those men with franchises have got to keep making use of outdated cleaning techniques and this also permits new operators to cash in on technology. These days people desire safe cleaning products, good results, fast service and fast drying of their carpets. Those of us skilled in the field recognize you can't fill that bill by following the "corporate line" of any particular franchise. Thus for best results, find a good business plan from somebody experienced in the industry who'll share the secrets of this business. Don't throw your money away on franchise operations.

Considering a Business Franchise Opportunity

A Business Franchise is mostly a generic word which can often include the majority of franchise opportunities. The expression 'Franchise' could be applied to pretty much anything that involves a license to make use of a trade name or an idea. For this reason it is often used in the movie industry to denote a group of movies that are produced along a related theme.

In the same way, this warrant to work with a brand name or concept can easily be used in business and is sometimes called "business format franchising". An organization that has thought up a great business idea and formula that proves itself to be successful, can in effect license out the right to use it to further folks who would like to setup in business.

Part of the reason that business franchising is so lucrative for brand names like McDonalds and Subway, are the potential to expand in this controlled manner additionally develops their brand awareness as their network grows. Individuals become used to seeing the branded franchised businesses and also the tested system ensures shoppers must always get the same service and quality no matter what store they pay a visit to.

Even with lesser known brand names, the energy of getting a bigger network behind you supplies possible customers confidence that they really are not dealing with a 'one man band'.

In order to start your hunt for the most suitable business franchise, among the list of best ways is by looking at online business franchise websites. These can help to provide you with a good range of opportunities with effective tools that could help narrow down your selections by affordability, location and industry type.

You may also want to examine a number of franchise magazines, newspapers or pay a visit to a franchise expo in order to get a feeling for franchising and to have an opportunity to realise whats out there.

When you've gotten a short list of choices to think about, it is possible to make contact with the franchisors you've chosen and drop by their head offices. This really is an excellent way to meet them face to face and ask any queries you may have regarding their particular franchise.

It's prudent to think about franchising as being a long term investment so its vital that you obtain a list of references from each franchise operator. These will generally be franchisees who are already running their own franchises which enable them to offer you helpful information and opinions on their experiences.

Consulting industry experts is also invaluable such as those accepted by the British Franchise Association. Franchise Consultants can assist you through the minefield of selecting a franchise business, whilst a franchise lawyer can help you with the legalities of purchasing a UK franchise opportunity.

Additionally make time to seek advice from one of the franchise departments of the major high street banks. They can advise on the total amount of finance they might be able to provide you. This might naturally assist in your choosing of a franchise system seeing as you may be in a position to afford more than you could consider at the outset.

How to Find Business Franchise Opportunities

The safest and risk-free way to start up a successful business is through business franchising opportunities. However, running a franchise is not for everyone. You will need some time to be able to fully understand what it entails - especially the selling aspects - before you decide to buy a business franchise opportunity. Business franchise opportunities are increasing internationally. This is because the business franchise opportunities and the franchising model is proven and successful. Here are the important tips for identifying and selecting the best business franchise opportunities.

Choose a franchise business that you will enjoy

The most important factor of all is buying a business franchise opportunity that you will enjoy. You will succeed when you truly enjoy the products and/or services that your business offers, and the customers and markets, then you will learn the skills rapidly. Enjoy the business so you will likely possess a good deal of knowledge about it.

Being an expert and a specialist at what you do is essential to running any business franchise opportunity - enjoyment and expertise naturally go hand-in-hand. If you find pleasure and a joy in what you are doing, you will find it easy to specialize and become an expert in that area. Your enthusiasm will be felt by your customers and everyone you meet. When you enjoy the business franchise opportunity you have, it will inspire and excite you and will naturally try your best not to fail the business.

Are you suited for franchising?

Like any new business venture, you need to carefully consider if you have the right skills and attitude to take a business franchise opportunity.
When taking a business franchise opportunity you must be prepared to sell. A business blueprint is given to you not the customers. Working hard is necessary ad you can spend long hours. Make sure you have the necessary stamina. Running your own franchise can be stressful. You should ask yourself - "How do I react when I am pressured?" You may take a business franchise opportunity because you want to be your own boss. Ask yourself if the time required on this business is okay with you.

Assess the business franchise opportunity

To assess whether a business franchise opportunity is suitable to you consider this things:

What the business franchise is and how it operates

Where to put up the franchise

How your competitors doing

If the franchisees is stable enough

How much training and support you need when starting up

Do you agree with conditions and restrictions in the franchise agreement

The franchisor will provide everything you need but do not rely on this. Search the internet and investigate. Ask other franchisees and banks for franchise experts. Make sure to review the contract before signing anything, get a professional advice if necessary.

Buying a Business Franchise - What to Consider

Franchises are very popular at the moment and more and more people are choosing to buy one as opposed to starting out by setting up their own business.

By purchasing a franchise you are effectively taking advantage of the success of an already established business. As the 'franchisee', you are buying a licence to use the name, products, services, and management support systems of the "franchiser" company. This licence normally covers a particular geographical area and runs for a limited time. The downside to a franchise is that you will never actually legally own the business.

As a franchisee, the way you pay for the franchise may be through an initial fee, ongoing management fees, a share of your turnover, or a combination of these depending on how you have set up the franchise.

A franchise business can take different legal forms - most are sole traders, partnerships or limited companies. Whatever the structure, the franchisee's freedom to manage the business is limited by the terms of the franchise agreement.

Is it worth investing in a Business Franchise?

The simple answer is yes. However, it is important that you follow some careful steps before buying into a Business Franchise.

The good news is that there is information to suggest that the Franchise Business sector is still growing rapidly. During 2007 the Nat West Bank carried out a survey into the UK franchise market which revealed the astonishing financial growth of this sector. The approximate annual turnover of the business franchise sector is in excess of £10.8 billion. What is more interesting to note is that the vast majority of Business franchisees are in profit - a total of 93% to be exact! In 1991 the total number of profitable franchisees was 70% and in 2004 it was 88%. Therefore, this business sector is growing and there is a reason for it.

Why is it growing?

The simple reason is that a Business Franchise is usually tested first before it goes to market. If it works in one area, then there is a very strong chance that it will grow in others. As an example, take a moment to think about popular franchises such as Dominoes or McDonalds. They are literally everywhere, proving the fact that if there is demand in one area of the country, there will be similar demand elsewhere. The reason for this is because generally we are all the same, as people that is and we tend to follow trends. If 100 people like eating Dominoes pizza, then eventually there will be 100,000 that do! It's simple science but it is worth thinking about when buying a franchise. The only downside to this philosophy is that the more demand there is, the higher the cost of the franchise.

Getting in at the right time.

The most effective way to turn your initial franchise investment into a successful profit is to buy in at the right time. That is, to buy into a franchise in a 'key' area and at a time when the franchise is generally unknown to the masses. The benefit of this method is that is a franchise is new and not very well known, the vendor cannot demand a high price for their franchise. The downside to this method is that you, as the franchisee, take the risk that the business as a whole may not grow into a hugely successful business.

Carry out lots of research before you commit.

The first piece of advice, and probably the most important, is not to part with your cash until you are absolutely sure you will see a return on your investment (ROI). Do not, and I repeat, do not part with your cash simply because you are eager to 'own' a business. Owning a business may appear to be exciting and a way of impressing your circle of friends, but in reality it is hard work and often difficult to get off the ground. That is why you must carry out plenty of research first before you commit to anything.

You need to also be aware that running a franchise can sometimes be frustrating. As a franchise owner you are doing exactly that - owning a franchise. You do not 'own' the entire business but instead you own the rights to use the brand and operating structure and resources. For some, this can be frustrating. As a franchise owner there will be plenty of rules and guidelines to follow, which is why you must make certain this is for you before you commit.

If you buy the franchise, and then a later date decide that it is not for you, then the franchiser could include a clause in the contract that states you must sell the franchise back to them for 'X' pounds. After this has happened, what do you think the franchise operator does? Yes that's right, he sells it to someone else for a handsome profit! So the first thing to do is to make sure you are 100% certain that you will feel comfortable with owning and running a franchise.

The next thing you need to ask yourself is what skills do you have. Remember in the first lesson, 'The Business Idea', we asked ourselves 3 important questions:

1. What am I good at?

2. What do I enjoy doing?

3. What are my experiences?

Before you invest in a franchise or choose one you should ask yourself these important questions again. The answer to these questions will help you to determine which is the best franchise for you. For example, if you like working alone and don't generally enjoy meeting people, then a franchise that involves serving customers is probably not for you. This type of business, where you are engaging face to face with your customers, can be difficult so think carefully about what type of business would best suit you.

Raising the finance to buy your franchise.

Before you decide on what franchise to invest in, you need to first decide how much capital you have to play with. This may sound strange, finding the money before the business, but there is a reason for it. Imagine attending a business franchise seminar or exhibition. You spend all day going round the stalls and stands and set your heart on one particular franchise which costs £20,000 to purchase. You go away and start to see if you can raise this kind of capital, only to realise that there's not a cat in hells chance of you finding this quantity of money. On the other hand, imagine going to one of these exhibitions knowing exactly how much money you have to play with. Now you are ready to choose the right franchise that is within your budget, something that is very important.

Some banks will lend you the money to buy the franchise depending on the economic climate, your previous track record, your financial standing and of course your business plan. Whilst it is possible to get a good business loan rate, there are better ways to raise the money. The first method is to borrow from friends or family. The reason why this is usually a better way is:

1. The risk is significantly reduced. You will not have to put forward your property as security.

2. They are more likely to accept a longer repayment term and lower repayments.

3. They will not expect a large return for lending you the money.

Whilst all of the above are positive aspects, if you fail to make back any payments that are owed you then you are likely to lose close friends and family and sometimes things can even end up in court.

The Franchise Agreement - 7 Points to Be Crystal Clear On

Some of the candidates that I work with as a franchise consultant are not crystal clear on the overall importance of the franchise agreement and what it represents.   

The UFOC (or franchise disclosure document) provides potential franchisees with specific information about the franchisor and their system during the early stages of the due diligence process.  Some candidates make the mistake of "speed reading" or scanning the franchise agreement because they have a good understanding of the details outlined in the FDD. This is not a good idea.   

The franchise agreement is the actual written contract signed by both the franchisor and the franchisee upon completion of a franchise sale. The franchise agreement is the heart and soul of the business relationship between the two parties. It spells out in very specific detail how the franchisor expects the franchisee to conduct business, and outlines the obligations of both parties.   

All franchise agreements are not identical, but they do contain similar provisions, and I have listed seven of the key items below, along with a brief explanation.   

Territory Guidelines. Most franchise agreements will designate a very specific territory in which the franchisee may do business. Sometimes exclusive territorial rights are granted.  

Fees Payable To The Franchisor. This includes the total investment, franchise fee, and ongoing royalties and when the royalties are to be paid.   

Services Provided By The Franchisor. Outlined here is the ongoing training and support, advertising commitments, and the products and services to be provided by the franchise.  

Term And Renewal Of Agreement. The specific period of time of the agreement is defined here, as well as renewal details. The typical duration is somewhere between 5 and 20 years. Termination policy is discussed as well.  

Site Selection. This section indicates who is responsible for site selection and the level of assistance provided by the franchisor. Ultimately, the franchisor reserves the right of final approval of the location.   

Advertising And Promotions. The franchisor must approve the content, appearance, and frequency of advertising executed by the franchisee.   

Selling And Transfer Rights. Franchisors typically reserve the right to approve the terms of any transfer and the transferee. Also, franchisors usually specify that they have the right of first refusal or to buy back a franchise.   

Since this is the binding contract between the franchisor and the franchisee, I always highly recommended that you hire an experienced franchise attorney to review the agreement in its entirety so you have a clear understanding of all of its contents. An attorney who is inexperienced with franchise law will not be qualified to adequately ensure your complete understanding of the details set forth in the franchise agreement.   

Necessary Evils - Working With Franchise Agreements

Understanding a franchise agreement is instrumental when building a business relationship between a franchiser and a franchisee. It outlines as simply yet detailed as possible what roles both parts play in this relationship. This agreement is meant to make sure that this particular franchise will be run the same way as all of the businesses that are under this franchise.

A franchise agreement bests benefits the franchiser. This is due to the fact that they have a particular model that

provides a perfectly outlined process of how the business is run. These are typically tried and true practices when it comes to larger businesses and the franchisee must do it to the letter. There are a few key points to consider when it comes to franchise agreements.

The first point to consider is the adherence to what the franchise operations manual lays out for the franchisee. The operations manual is considered to be the bible of that particular franchise. It is a handbook that provides all of the necessary guidelines and steps to take in whatever situation may arise when it comes to the business. This "bible of the business" is copyrighted to the franchiser and if anyone makes the contents of the book public they could have legal actions taken against them. As the manual is amended, franchisees need to follow all additions to it. There can be penalties when they do not follow these amendments.

There is an explanation of how exactly that particular contract will work out. This portion of the contract covers each and every aspect of the agreement. It explains the relationship that is expected between the franchiser and the franchisee. It is important to remember that this is a commitment and if signing into this kind of relationship--every aspect of the contract needs to be understood in layman's terms. It is crucial to understand and if it is necessary it is best to have a lawyer to look over the contract for you. The lawyer will be able to aid in research and questions to make sure that you are also safe in your investment.

The next section will have the "remarks of the proprietor". This section explains the use and misuse of theimportant things such as the name of the franchise, the guidelines to training, advising information, and even the support systems that are in place for the franchisee. This section also covers what strategies in regards to marketing and advertising are mandatory to use.

The fourth section will cover clearly which materials will be used in regards to advertising. It will cover whatmediums are to be used for promotion and how much money will more than likely be invested into promotion and advertising regionally. This should described so that the franchisee will know what they are signing on for.

The fifth section is repair, upkeep, and maintenance. This is a detailed overview of the repairs and upgrades that the franchisee will need to to make after specified spans of time or when they are needed. In this agreement it is typically specified what needs to be updated and when. It covers every aspect of design and utilities such as interior and exterior decor and furniture.

There are other specifics that are covered such as insurance, terms of agreements, accounting, and specific clauses dependent upon the franchiser. These all need to be considered and looked over until there is a complete understanding.

Things That Should Be Considered In a Franchise Agreement Contract

A franchise agreement contract is the most sophisticated document whenever it comes to franchise opening and franchise handling methodologies. This one piece of paper holds the license of you operating with the business in various areas or parts of the selected region. This is the reason that these should be clearly read and reviewed before actually signing it and starting the business. This approach has worked efficiently for most of the franchise holders. But as said earlier, these are very sophisticated documents and that is why there are several things that need to be considered when it comes to the franchise agreement contract.

First of all the territory of the business must be defined and checked in order to be sure that you are not entering into some other franchise's territory. This approach is simply against the rules and laws of the contract. Secondly the total investment that includes all the costs in opening up a franchise must be mentioned and checked carefully. The next thing that needs to be monitored in a franchise agreement contract is the services and products that will be offered in that specific region by a specific franchise. This will make the goals clear.

There are many other factors such as the site selection, promotions and advertising activities the franchise will start in order to make the awareness of the product or service that is being offered. Renewal terms are also mentioned in these contracts so it also contains information on how should you run your franchise and what has to be achieved in order to get the renewal contract. It also has the information about the selling and the rights that are transferable.

So a franchise agreement contract is the document that will tell you that how you can get the best out of the franchise and what has to be achieved in order to become the partner with the company once again.

The Perilous Franchise Agreement: What Did You Sign?

Purchasing a franchise has become one of the most popular avenues for individuals looking to escape the rigid work day of a 9 to 5 job and take the leap into the world of independent business owner. After all, who doesn't dream of being their own boss and controlling the limits of their own financial future? For anyone looking to act on their entrepreneurial spirit, franchising can indeed offer many attractive qualities that can provide excellent growth and earning potential, as well as satisfy that longing for independence. On the other hand, individuals that jump into franchising too quickly without adequate planning can find themselves mired in financial and legal problems. Even the most sophisticated businessperson can fall into this trap and be left scrambling to understand exactly what they signed.

Purchasing a franchise requires not only a substantial investment of time and money, but requires careful planning and investigation. You should thoroughly review all disclosure documents provided to you and take the time to interview both current and former franchisees of the franchise system. These simple but important steps will often spur many new questions for you to ask the franchisor and assist you in making an educated decision about which franchise is right for you. In particular, you should inquire about the types and amounts of initial and ongoing training, marketing and advertising support the franchisor provides. Indeed, your monthly royalty payments should go to more than just the licensing rights of the franchisor's name. Those hefty payments should also be subsidizing the franchisor's ongoing support and assistance, as well as brand improvement to help you develop and maintain a prosperous business.

Part of your careful planning and investigation should also include a detailed review of any document the franchisor asks you to sign. Every franchise document has been prepared by an experienced team of lawyers and you should consider arming yourself with the same professional advice and counsel before you sign on the dotted line. You should take the time to review and understand each term in your franchise agreement. Even the most seemingly benign words such as "sole" or "reasonable" in terms of the franchisor's discretion can mean the difference between salvaging your business and forfeiting your entire investment.

In taking steps to better understand what you are signing, you will be better prepared to negotiate with your franchisor to include more favorable terms in your franchise agreement, or, in some instances, avoid signing an extremely oppressive agreement altogether. While it is typical that your franchisor will negotiate some terms of the proposed franchise agreement, it is highly likely that it will hold fast to many terms as written. Pay particularly close attention to clauses or phrases that appear one-sided. In other words, if the franchisor is permitted to do something make sure you too are afforded the same contractual rights. Other important clauses and terms may include any or all of the following.

Restrictive Covenants

Beware of restrictive covenants that may prevent you from carrying on your livelihood both during your franchise term and for a period of years after your franchise expires or otherwise terminates. These terms are typically referred to as covenants not to compete. These clauses can cut both ways, and often do. For instance, if a franchisee is located next to you and he/she agreed to a restrictive covenant, they would not be able to operate for a certain time period or within a certain radius of their store or other franchised stores after termination or expiration of their franchise. On the other hand, should you be terminated or not renew your franchise agreement, you also could be prohibited from operating a similar business for a period of time in a specified area.

Exclusive Territories

It is extremely important that you be afforded an exclusive territory in which to operate your franchise. If you do not include this in your agreement your bottom line may suffer substantially from encroaching franchisees, corporate competitors, or both. Also, if your business entails sales, make sure you franchisor is not permitted to unreasonably compete with you through internet sales. Internet competition may serve to be just as devastating to your business as if another store opened next door.

Cross-Default Provisions

Oftentimes franchisors will include cross-default provisions in your franchise agreement. This means that a default under one agreement can be construed as a default under all agreements that you have with the franchisor. This is particularly troubling if you own multiple franchised units which would permit your franchisor to terminate not one, but all of your stores, regardless of how profitable one may be over the other.

Lease Takeover Clauses

Franchisors often require that in the event your franchise agreement is terminated, that it be entitled to come in and operate your store and take over your lease. This is extremely important for franchisees who may wish to exit the system and operate a completely separate business out of the leased space. By agreeing to this term, you may effectively give up any rights you have to a prime location.

Renewal Rights

You should be afforded the opportunity to renew your agreement or have the right to sell it for value. You do not want to learn after ten or more years of hard work that you simply have "rented" a business and have no way to profit from the development of your good will and your substantial investment of time, money and effort.

Dispute Resolution/Venue Selection

While no one wants to plan for or even think of ending up in litigation with their franchisor, a smart businessperson will always plan for the worst case scenario. Beware of clauses that require you to litigate in a specific forum. If you are located in Virginia and your franchise agreement requires that all disputes be decided through arbitration in Arizona, keep in mind that costs in having to defend or bring claims against your franchisor will be significantly increased. In addition, try to avoid waiving your right to a jury - in most instances, juries will be much more receptive to a franchisee's plight than a law-bound judge.

By informing yourself upfront about the potential dangers that may lie ahead, you will be better equipped to deal with the challenges faced by many into today's ever-growing and ever-changing world of franchises. In the long run, a small investment of time and money up front to understand exactly what you are signing will better prepare you for the future of your franchise. Most importantly, it will likely better equip you to maintain an extensive and prosperous relationship with your franchisor for years to come.

Importance of a Quality Franchise Agreement

Franchising is a relatively modern distribution channel that permits foreign brand owners to exercise a substantial degree of control over the manner and mode in which their products or services are offered and sold to consumers. It ensures efficient and rapid trans-border market penetration to the Franchiser, an opportunity to take its brand beyond boundaries with minimum capital investment and risks.

Simply put, a franchise is a business model premised on a license granted by one entity (the 'Franchiser') to another (the 'franchisee') permitting use/exploitation of the Franchiser's intangible assets such as brand/trade name, business model and concept, image, marketing techniques and other intellectual property for the purpose of making sales or providing services in a defined geographic location in return for a sum of money.

Importance of a Quality Franchise Agreement

'Quality' in any agreement, regardless of its subject matter, is, inter alia, seminal for mitigation or avoidance of disputes between contracting parties. 'Quality' of an agreement may be assessed on numerous parameters including: clarity in purpose, holistic/loophole free character; unambiguous provisions/terms/conditions with no scope for contradiction; manner of presentation; and most important enforceability.

A 'franchise agreement' is a contract between the Franchiser and the franchisee which defines their relationship and inter se rights and obligations.

'Quality' assumes even more significance in a franchise arrangement due to the inherent commercial and operational complexities present in such arrangements. A quality franchise agreement must effectuate the underlying symbiotic relationship between the Franchiser and the franchisee.

A quality franchise agreement must ensure clear, unambiguous and water tight coverage of all critical issues, such as, roles and obligations of the parties, confidentiality and intellectual property protection; payment terms and taxes; duration, renewal and termination; agency issues; post termination issues; negative covenants; governing law and jurisdiction (especially in international franchise arrangements).

Naturally, the importance of a quality franchise agreement for a Franchiser and a franchisee differs considerably as discussed below.

The Franchiser's Perspective:

The importance of a quality franchise agreement for a Franchiser cannot be stressed enough. Of paramount importance for the Franchiser is protection of its brand, image, reputation, know-how, business concept and other intellectual property rights as well as limiting exposure to potential risks and liabilities resulting from the franchisee's conduct.

It is important that the franchise agreement is carefully drafted to ensure clarity on duties and services of the franchisee including in the areas of investment and infrastructure, adherence to specific operating guidelines to maintain uniformity, reporting requirements, quality maintenance; annual market penetration targets; financial returns such as royalty and fee payment, etc.

A quality franchise agreement should provide adequate fetters and security against misuse of the Franchiser's intellectual property rights by the franchisee. Further, it must provide enough quality control mechanisms to the Franchiser, including control over managerial discretion of the franchisee, to enable it to control its business concept and protect its brand and reputation. Consequently, the franchise agreement must unambiguously and comprehensively address vital issues, such as, the temporal and territorial scope of the license, the rights and property licensed, nature of the license, restriction on use of licensed rights and property, quality control measures, including periodic audits to ensure that the business concept is adhered to, sourcing of products, training, type of products to be sold under the franchise, etc. The business concept being licensed and mode and manner of operation must be clearly stipulated to enable the franchisee to conform to it. However, the downside of excessive control over a franchisee and franchised products is that the Franchiser may become susceptible to liability for acts of the franchisee in claims by third parties. A quality franchise agreement should ensure that the relationship is on principal to principal basis and the Franchiser is not liable for the franchisee's acts and omissions.

Another crucial issue for the Franchiser is protection from competition by its franchisee. It is common practice to include non-compete covenants during and post termination in most franchise agreements. However, a quality franchise agreement, like any other agreement, must have a carefully crafted non-compete clause to ensure that it is enforceable under law and not a redundant term. Unreasonable post termination non-compete clauses which are against public policy and in restraint of trade would be enforceable.

A quality franchise agreement should ensure that the franchisee conforms to the business concept. It must have stringent provisions to deal with situations of breach and non-adherence to the business format and misuse of brand by the franchisee. Also, the franchise agreement must protect the revenue flow from the franchisee to the Franchiser.

Issues related to governing law and jurisdiction, post termination obligations to ensure protection against breach of confidentiality and intellectual property, inventory handling are equally critical and need to be adequately addressed in a franchise agreement to ensure effective control and systematic business expansion.

The Franchisee's Perspective:

'Quality' is as serious an issue for the franchisee as it is for the Franchiser. As the initial investment in the venture is that of the franchisee, a quality franchise agreement is essential for a franchisee to capitalize on its investment.

For a franchisee, a quality franchise agreement must have clearly defined payment terms with no hidden fees or costs and a clearly defined area of operation. It must protect the franchisee from infringement of third party's intellectual property rights due to use of Franchisers intellectual property by the franchisee. Further, the franchise agreement must enable the franchisee to optimally leverage the brand and other intellectual property rights licensed by the Franchiser and ensure continuity of supply (wherever applicable). Therefore, a clearly and properly defined business concept and format is as important for the franchisee as it is for the Franchiser. It helps the franchisee avoid implementation issues and ensure profitability of the venture. A quality franchise agreement should enable the franchisee to extract maximum support for implementation of the business concept from the Franchiser by way of training, up-gradation of concepts and evolving technologies, etc. The relationship between the Franchiser and the franchisee should be that of independent parties and the agreement must be carefully drafted to avoid an inference of agency.

Thus, a quality franchise agreement is the very fulcrum upon which the success of a franchise rests which by itself underscores the importance of 'quality' in franchise agreements.

Franchise Agreement Format, Why It's Important

The Franchise agreement format is almost universal. A franchise agreement is a legally binding document between the franchisor and franchisee. It sets in stone the agreements' terms and conditions. The thing is that most established franchise holders have an ironclad contract with virtually no room for negotiations. They present you a contract and it is what it is. The contract is there to protect the franchisor and all of it is in their favor so before you sign you need to be sure you understand every line.

The Federal Trade Commission has rules regarding how the contracts should be handled. They have set forth that a potential franchisee must be given a copy of the franchise agreement at least five business days before it is to be signed. This will allow them the time to consult with an attorney to get the contract details explained in plain English. Even if you have had a franchise before, it is best to have it read and explained by an attorney. There is no standard format for these types of agreements and each business will have something included that is vastly different from all the others.

What You Can Expect In A Franchise Agreement

Below you will find a few of the things that are generally spelled out in detail as a integral part of the franchise agreement format. You should make it a point to go over each of them with care and to make sure you understand the reason for its being there. When looking for an attorney to help you to understand a franchise agreement it is best to find one that specializes in this type of contractual law. The language used for the following items can be a bit confusing otherwise.

1. Territory - Some franchises include exclusive rights to certain areas. The contract must include details of the award and how the territory is to be defined. For example is it zip code to zip code, square miles etc.

2. Time - The term of the agreement should be clearly stated. Most franchise agreements are only good for a set number of years, most are 5-10 year contracts. If it is renewable it should also be included and what the criteria will be for renewing the contract.

3. A list of all fees and payments due - There are three fees that are common to most all franchise agreements. They are the initial fees for the franchise, royalties and marketing contributions. There may be other fees but you must make certain they are included from the top.

4. Franchise support - What exactly are the franchise holders going to do for you the franchisee. What types of training and support can you expect from the parent company? This is very important and should be in full detail in the franchise agreement.

5. Franchisee's obligations - This section shows you what they expect from you as a user of their intellectual property. Most franchises have uniformity across the country that all franchises must adhere to. This includes things like opening and closing times, uniforms, licenses, permits, suppliers hiring and training of employees and so much more.

6. Trademarks - A franchise agreement must spell out what is acceptable and unacceptable use of the franchise trademarks and other proprietary properties.

7. Advertising - most franchises have approved advertising formats that must be strictly adhered to. Your contribution to the advertising budget must be spelled out to the letter. The franchise agreement should list what the cost is and how much you are expected to contribute.

There are many other items that will be listed in a franchise agreement. It is imperative as you can see that you allow yourself time to become familiar with all the various items in the agreement before signing on the dotted line.

Franchise Agreements and Conditions of Transfer

In modern day franchising there are often situations where a franchisee, which is an individual or a franchisee, which is a corporation will wish to sell their rights under the contract to another party. A franchisor has to pay attention to these things to insure that there is no illegal or inadvertent transfer of confidential proprietary information such as secret recipes, operations manuals or marketing methods.

Indeed this stands to be reasonable to wish to monitor it, however it is not nearly as easy as it sounds as many deals, appear to be cut and dry or black and white can quickly become rather convoluted. It is so easy to accidentally allow information to slip your grasps and always difficult to control. Then there is the occasional competitor who will attempt to legally attain your secret information through owning interests in one of your franchised outlets. How do I know, well it happened to me. So, I added this expanded clause to our franchise agreement to prevent this in the future;

5.2.4 Conditions to Transfer

In connection with any transfer provided for above (which requires Franchisee's consent), the following requirements must be met to the full satisfaction of Franchisor as a condition to any transfer:

(a) The proposed transferee or its principals must meet Franchisor's reasonable requirements for experience, net worth and character, as applied by Franchisor on a nondiscriminatory basis in selecting new Franchisees and must have or obtain before transfer all licenses required by law for operation of the Franchised Business.

(b) The proposed transferee or its designee must attend and satisfactorily complete Franchisor's initial training.

(c) The proposed transferee (and each partner, member or shareholder) must have duly executed an agreement to be bound by, and to assume and perform all the duties of the Franchisee under, the Agreement (including, in the case of such partners, members or shareholders, the covenants not to compete required by Section 3.20).

(d) All maintenance, repairs and renovations required to bring the Franchisee's premises into compliance with Franchisor's standards must have been completed. All maintenance, repairs and upgrades required to bring the Franchisee's mobile units and equipment into compliance with Franchisor's standards must have been completed.

(e) All monetary obligations of Franchisee under this Franchise Agreement are fully paid and Franchisee and each of its partners, members, shareholders, officers and directors must execute a general release of any and all claims against Franchisor and its affiliates and its predecessor, sister or co-brand companies and their shareholders, officers, directors, employees, agents and their spouses.

(f) Franchisee agrees to remain liable for all obligations to Franchisor in connection with the Franchised Business prior to the effective date of the transfer and must execute any and all instruments reasonably requested by Franchisor to evidence such liability.

(g) If the transfer results in more than a fifty percent (50%) change in the beneficial ownership of the Franchised Business, then the transferee must execute the then current form of the Franchise Agreement, except that the initial term will be the same as the remaining term of the original Franchise
Agreement.

(h) The transfer fee specified in Section 2.4 must have been paid in full.

(i) Franchisee must offer the Franchised Business to Franchisor in writing for the right of first purchase. (See Section 5.5 of this Franchise Agreement.)
Before the effective date of a transfer Franchisor approves:

(a) Franchisee must agree to remain bound by the covenants in this Franchise
Agreement to not compete against Franchisor and to not disclose confidential information.

(b) Franchisee will pay all ascertained or liquidated debts concerning the
Franchise.

(c) Franchisee may not be in default under this Franchise Agreement or any other agreement between the parties.

(d) Franchisee will pay Franchisor or a registered and approved business broker, which
Franchisor may have at the time of the transfer, a ten (10) percent commission on the gross transfer price (excluding the price of real property), if Franchisor obtains the transferee for Franchisee.

Any transfer by Franchisee must be approved by Franchisor in writing. The transferee must execute the standard form Franchise Agreement then being offered to new System Franchisees and such other ancillary agreements as Franchisor may require for the Franchised Business, which agreements will supersede the original Franchise Agreement in all respects and the terms of which agreements may differ from the terms of this Franchise Agreement; provided, however, that the transferee will not be required to pay the $20,000 Initial Fee and the Marketing Area provided for in this Agreement will remain the same.

5 Franchising Lies Exposed

Although franchising is widely known to offer aspiring, new business owners the best possible chance of success with the least amount of risk, there are some myths out there that can tend to alienate even the most die-hard entrepreneur. Below, I clear up some common franchise misconceptions that will breathe new life into your goal of owning a franchise business.

Owning A Franchise Guarantees Success. You need to get clear on the myth that by owning a franchise, you absolutely cannot fail. That's a crock. There are numerous factors, both controllable and uncontrollable, that can determine the fate of your success. However, a huge statistic is in your corner: overall, the success rate of franchising is as high as 95%. Of independent start-ups, on the other hand, only about 2/3 are still in business after 2 years and, sadly, less than half survive 4 years, according to the Small Business Association. No guarantees here, but with a determined effort on your part, franchising is the obvious choice. 

Brand Name Means Everything. While you cannot minimize the importance of a highly recognizable brand name, it is only part of the equation. Brand is very significant with burger and automotive franchises. However, there are many franchise categories, some you may not even be aware of, where the brand clearly isn't the main focus, but that doesn't translate to a lack of success.  

Mr. Handyman, for example, a homeowners and commercial maintenance and repair franchise, has over 300 franchise units across the United States and Canada. The Home Improvement market is huge and continues to grow, with Americans spending more money on remodeling, renovating and decorating than ever before. The brand isn't a household name like McDonald's, but this home based franchise is a highly successful one, with a much smaller investment required. 

There are hundreds of consulting type franchises that most people have never heard of by name. Many are extremely successful, with much less overhead, than fast food or automotive franchises. 

A significant investment is involved, so the only one getting rich is the franchisor. What a joke. Franchisors absolutely need profitable, successful franchisees to flourish. The fact that ongoing royalties are paid by franchisees on a regular basis indicates that a fair an equitable relationship exists between the two parties, and that the franchise is profitable. If they weren't, who would pay these fees? A poor performing franchisee will not last very long. The franchising business model is structured specifically so that both the franchisor and the franchisee succeed.

Bigger Is Always Better. Not true, especially in the franchising world. Think about it: would you rather invest every last dime you have into a fast food business, make a decent income, and deal with high turnover, high overhead, theft, worry about what is going on at your store with the brand new teenager that is working the Saturday night shift? Or, would you prefer a home-based service franchise that costs $50,000 (or less), allows for plenty of family and free time, and generates as good or even better income than the food business? Most potential franchisees are better suited, and would even prefer, a small franchise with limited, but highly skilled, employees.

Owning A Franchise Means You're On Your Own. Nothing could be further from the truth. Yes, ultimately, whether a franchise succeeds or fails is the responsibility of the franchisee. However, a huge benefit of being a franchisee is that there is always a support staff, provided by the franchisor, ready to help you with any issue you may encounter regarding your business. Some offer 24-hour call centers. You are most definitely in business for yourself, but not by yourself. 

Because the general disposition of our society tends to be negative, positive aspects regarding anything, including franchising, can become distorted. I've focused on clearing up five of them here, although there are more, to be sure. Do your research and align yourself with an experienced franchise consultant who can provide you with the necessary facts so that you're able to make an educated decision about a specific business opportunity.

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