What To Consider Before Buying a Franchise

by: John Mussi

Here are some useful tips on what to consider before buying a franchise. Before investing in any franchise system, be sure to get a copy of the franchisor's disclosure document. Sometimes this document is called a Franchise Offering Circular. You should read the entire disclosure document.

The following outline will help you to understand key provisions of typical disclosure documents. Get a clarification or answer to your concerns before you invest.

Business Background: The disclosure document identifies the executives of the franchise system and describes their prior experience. Consider not only their general business background, but their experience in managing a franchise system. Also consider how long they have been with the company. Investing with an inexperienced franchisor may be riskier than investing with an experienced one.

Litigation History: The disclosure document helps you assess the background of the franchisor and its executives by requiring the disclosure of prior litigation. The disclosure document tells you if the franchisor, or any of its executive officers, has been convicted of crimes involving, for example, fraud.

Bankruptcy: The disclosure document tells you if the franchisor or any of its executives have recently been involved in a bankruptcy. This will help you to assess the franchisor's financial stability.

Costs: The disclosure document tells you the costs involved to start one of the company's franchises. It will describe any initial deposit or franchise fee, which may be non-refundable, and costs for initial inventory, signs, equipment, leases, or rentals.

Restrictions: Your franchisor may restrict how you operate your outlet. The disclosure document tells you if the franchisor limits the supplier of goods from whom you may purchase, the goods or services you may offer for sale, the customers to whom you can offer goods or services or the territory in which you can sell goods or services.

Terminations: The disclosure document tells you the conditions under which the franchisor may terminate your franchise and your obligations to the franchisor after termination. It also tells you the conditions under which you can renew, sell, or assign your franchise to other parties.

Training: The disclosure document will explain the franchisor's training and assistance program. Make sure you understand the level of training offered.

Advertising: You often must contribute a percentage of your income to an advertising fund even if you disagree with how these funds are used. The disclosure document provides information on advertising costs.

Current and Former Franchisees: The disclosure document provides important information about current and former franchisees. Determine how many franchises are currently operating. A large number of franchisees in your area may mean increased competition. Pay attention to the number of terminated franchisees. A large number of terminated, cancelled, or non-renewed franchises may indicate problems.

Earnings Potential: You may want to know how much money you can make if you invest in a particular franchise system. Be careful as earnings projections can be misleading. Insist upon written substantiation for any earnings projections or suggestions about your potential income or sales.

Financial History: The disclosure document provides you with important information about the company's financial status, including audited financial statements. Be aware that investing in a financially unstable franchisor is a significant risk; the company may go out of business or into bankruptcy after you have invested your money.

Hire a lawyer or an accountant to review the franchisor's financial statements. Do not attempt to extract this important information from the disclosure document unless you have considerable background in these matters. Your lawyer or accountant can help you understand the information.


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About the Author

John Mussi is the founder of Direct Online Loans who help UK homeowners find the best available loans via the www.directonlineloans.co.uk website.

How To Select a Franchise

by: John Mussi

Here are some useful tips on how to select a franchise. When selecting a franchise, carefully consider a number of factors, such as the demand for the products or services, likely competition, the franchisor's background, and the level of support you will receive because like any other investment, purchasing a franchise is a risk. You will do well to consider the following items before selecting a franchise:

Demand: Is there a demand for the franchisor's products or services in your area? Is the demand seasonal? Is there likely to be a continuing demand for the products or services in the future? Does the product or service generate repeat business?

Competition: What is the level of competition? How many franchised and company-owned outlets does the franchisor have in your area? How many competing companies sell the same or similar products or services?

Ability to Operate the Business: Will you be able to operate your outlet even if the franchisor goes out of business? Will you need the franchisor's ongoing training, advertising, or other assistance to succeed? Will you have access to the same suppliers?

Name Recognition: A primary reason for purchasing a franchise is the right to associate with the company's name. The more widely recognized the name, the more likely it will draw customers who know its products or services:

Training and Support: Another reason for purchasing a franchise is to obtain support from the franchisor. What training and ongoing support does the franchisor provide?

Franchisor's Experience: Many franchisors operate well-established companies with years of experience both in selling goods or services and in managing a franchise system. Carefully consider how long the franchisor has managed a franchise system.

Growth: A growing franchise system increases the franchisor's name recognition and may enable you to attract customers. Make sure the franchisor has sufficient financial assets and staff to support the franchisees.

You may freely reprint this article provided the author's biography remains intact:

About the Author

John Mussi is the founder of Direct Online Loans who help UK homeowners find the best available loans via the www.directonlineloans.co.uk website.

Franchise Legal Considerations

by: Jim Brown

Franchise Legal Considerations

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 information that a prospective franchisee needs in order to make a rational decision about whether or not to invest.

In effect, the rule obliges franchisors to meet certain FTC standards, such as ensuring that a reasonable basis for any claims exists, that the disclosure has been prepared in accordance with accepted accounting principles, and that there is evidence to support the financial claims, and that the franchisee, among others, can see this evidence.

In particular, the disclosure rule requires that the franchisor provide information about:

(a) 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.

(b) Any lawsuits or previous bankruptcies in which the franchisor, its officers, directors, and management personnel have been involved.

(c) Initial franchise fees and other payments required to obtain a franchise, and a description of continuing payments to be made after the franchise opens.

(d) 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.

(e) Any assistance available from the franchisor or its affiliates in financing the purchase of the franchise.

(f) Restrictions on the goods or services franchisees are allowed to sell and any restrictions on the customers with whom they may deal.

(g) Any territorial protection to be granted the franchisee.

(h) 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.

(i) Any training programs provided to the franchisees.

(j) Any involvement of any celebrity or public figures in the franchise.

(k) Any assistance provided by the franchisor in selecting the site for the franchisee.

(l) The number of present franchises, franchises projected for the future, franchises terminated or not to be renewed, and the number repurchased in the past.

(m) The financial statements of the franchisors.

(n) The extent to which franchisees must personally participate in the operation of the franchise.

(o) The basis for any earnings claims made to the franchisee, including the percentage of existing franchises that have achieved the results claimed.

(p) 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 or rip-off. You must use common sense and do your research!

© 2002-03. GlobalBX. http://www.globalbx.com. All rights reserved. Buy a Business or Sell a Business on GlobalBX. GlobalBX is a free business for sale listing exchange that provides a confidential forum to facilitate the buying and selling of businesses with thousands of businesses and franchises for sale as well as comprehensive business information for business buyers and business sellers. Lists businesses for sale, business brokers, and franchise opportunities.

About the Author

Jim Brown is Director of Marketing at GlobalBX, http://www.globalbx.com. Buy a Business or Sell a Business on GlobalBX, a free business for sale listing exchange that provides a confidential forum to facilitate the buying and selling of businesses with thousands of businesses and franchises for sale as well as comprehensive business information for business buyers and business sellers. Lists businesses for sale, business brokers, and franchise opportunities.

Before Getting A Franchise

by: Colin Ong TS

Buying into a franchise is a great way to be part of a recognized brand with the benefit of lower advertising outlay. With many franchises to choose, here are some tips before you get involved with franchise:


Get The Support of Your Family:

The success of your franchise is also the acceptance of your immediate family in supporting your effort. It is this simple. Take for instance, if you buy a franchise which is part of a book-store chain and your family does not even visit it once. Will you have the determination to see it through? If you need to take a short vacation, will your family member help to run the franchise in your place?


Know Your Strengths & Expertise:

A franchise should not just be a means for you to start your first business. It is preferable that you have a recognized skill or interest in the franchise before parting with the franchise initial capital. Maybe take a personality test to determine if you have the tenacity to follow through with the franchise.


Unique Proposition Of The Franchise:

The franchise should be protected by a patent or intellectual property law. This will create a significant barriers to entry.


Market Research:

A franchise can be a huge success in a particular geographical region but has less acceptance in another country. Thus it is crucial that you inspect the relevance of the market research that has been conducted by the franchise company especially in the area of when the market research was conducted and the demographics of the sample set.


Franchise Competition:

Do not get a franchise that does not seem to have a recognized competitor or an industry that can be classified – unless you are interested in being a master franchiser or have a first-mover advantage. The market may be slow to accept your franchise and you may find it hard to re-coup your initial investment within the agreed contractual period.


Legal Assistance:

It definitely pays to get a legal expert to read the franchise contract fine-print. You do not want to be accused of violating some of the franchise terms of agreement and pay an unnecessary penalty.


Get New Contacts:

Do not just depend on the contact database that may be provided by the franchise owner. You should also try to generate new contacts as the franchise contact database may also be used by new franchisees.


Unique Ways Of Promotion:

Buying a franchise should not mean that you lose your competitiveness and innovativeness. You should find new ways of promoting your franchise through flyers, website and even various media. But remember to inform the franchise owner of your effort and get approval.


Joint Promotions:

You should also team-up with the franchise owner to joint promote in trade fairs and trade directories. You can also volunteer to start a dedicated franchise newsletter and be a regular article contributor. Your ideas may help improve the franchise.


Colin Ong TS is the Managing Director of MR=MC Consulting (http://www.mrmc.com.sg) and Founder of the 12n Online Networking Community (http://www.mrmc.com.sg/12n)

colin@mrmc.com.sg

Tips for Researching a Franchise Business

by: June Campbell

A franchise operation can be an excellent investment for people dreaming of self-employment. Franchise opportunities fall into three basic categories: Product, Service and Wholesale Distribution. The franchise you select must be one that will maintain your interest through years to come. Not even a lucrative franchise opportunity will work for you if you find the business dull or boring. However, like all business opportunities, there are risks involved. You'll
minimize the risks by doing your homework before you sign on the dotted line.

1. Conduct Preliminary Research
Ask the franchise company to send you brochures, pamphlets and videos, if possible. Then, locate the nearest two or three franchise operations and visit each. Talk with the franchise holder, the employees and the customers to get their reaction to the product or service. Hint: Ask the franchisee if he or she would purchase the same franchise again.

2. Study Company Documents
US franchisors are required by law to provide you with documents offering full disclosure of the franchise opportunity. (Laws may differ in other countries). These documents could be called the Offering Prospectus (OP), the Disclosure Document or the Franchise Offering Circular. These papers provide you with a wide range of information about the franchisor. Look for a company that is three years old or more. Senior executives should have positive business
experience in the franchise field and have a good record regarding previous litigation and bankruptcies.

3. Consult with Business Professionals
Take the OP, the Disclosure Document, and the franchise contract to an accountant, attorney, management consultant or other business professional for analyses of the financial and legal aspects.

4. Learn the Franchisor's Policy Regarding Territory Protection You'll want to know the franchisor's policy regarding the number of franchise unit's they'll establish within a geographic area. Do you have a protected territory? You don't want to discover that the company has established a similar unit across the street from your operation. Additionally, some franchisors also open and operate company owned stores as well as the franchise outlets. What's their policy regarding company stores?

5. What Fees Must You Pay?
Expect to pay an initial franchise fee (often non-refundable), as well as fees for startup expenses, inventory, licensing, insurance, and a "grand opening fee" for initial promotion. Anticipate annual expenses such as royalty fees and marketing fees. Find out what portion of your advertising fees goes to your own outlet and what portion goes to national advertising. Hint: Ask about hidden fees.

6. When Will You Break Even?
Based on your investment and the breakeven analyses in the OP, how long before you reach the breakeven point and start making a return on your investment? Do you have financial strategies that will allow you and your business to survive until the breakeven point? What sort of profits might you reasonably expect to make? Franchisors are not required by US law to offer profit projections to their franchisees. However, if they do, they are required to base their projections on concrete research.

7. How are Conflicts Resolved?
Is there a Conflict Resolution Policy in place? What do other franchisee's say about the company's approach to addressing conflicts? Under what circumstances can the company terminate your contract? If your contract is terminated, will you lose your investment? When will the contract be up for renewal? Hint: Franchise contracts that are renewed do not necessarily keep the same terms as the original contract. Terms could be less favorable.

8. Will the Franchisor's Advertising Campaign Benefit You?
You are required to pay a fee towards the franchisor's advertising campaign. Find out the extent to which this campaign will benefit your outlet. Do you have any control over how the advertising dollars are spent? Can you conduct your own advertising? Do you need permission to do so? Do franchisees benefit from any commissions or rebates that the franchisor receives?

9. What's the History of Failed Outlets?
Before investing, find out the number of outlets that have failed. High numbers could indicate systemic problems. Be aware that some franchisors will disguise failed outlets by turning them into company-owned stores. If you are purchasing an existing outlet, be sure to find how many previous operators have operated the service and why they left. Hint: Conduct interviews with people who have recently left or joined the franchise. Be sure to ask if the franchise company is delivering the promised supports and services.

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ABOUT THE AUTHOR
June Campbell
How to Write Business Plans, Business Proposals,
JV Contracts,Human Resource Package, More!
No-cost ebook "Beginners Guide to Ecommerce".
Business Writing by Nightcats Multimedia Productions
http://www.nightcats.com

The Franchise Alternative

by: Elena Fawkner


ANY new business involves risk. The proportion of new businesses that fail within their first two years of operation is much higher than those that succeed. Whether you can afford the risk of your business failing depends on your own individual circumstances. If you are continuing in full-time paid employment and your business is something you start in your spare time for a little extra cash to see how it goes before quitting your job, then you are more likely to be able to afford the risk of that business ultimately not succeeding.

But what if you've lost your job, taken a package, and are looking for a business in which to invest the proceeds of your package? All of a sudden the risk of your new business failing looms very large indeed.

One way of reducing that risk is to consider buying a franchised business.


WHAT IS A FRANCHISE?


Simply put, franchising involves the owner of the business which is being franchised ("the franchisor") granting to the person who wants to offer the products and services of the franchisor ("the franchisee") rights to use its trademarks, business names, associated intellectual property, know-how, business systems, training systems and operating manuals in exchange for monetary payment in the form of an initial franchise fee/purchase price and/or ongoing royalty payments which are typically calculated as a percentage of the franchisee's turnover.


ADVANTAGES OF A FRANCHISE

-> Proven system

The franchisor has already done the work of establishing a system for the business being offered for franchise. This system provides you, the franchisee, with a roadmap to follow, hopefully to success. The franchisor has already tested and refined all aspects of the business and has created a "business success formula" for the franchisee to follow. This means that you are spared the trial and error of working out what works and what doesn't and are therefore freed to focus on "working the system", hopefully generating profits within a short period of time.


-> Avoid many start-up problems

Starting a business from the ground up requires a lot of time and effort just getting the basics in place. These include major undertakings such as developing a reputation in the market place, obtaining finance to fund the new venture and overcoming competitive threats, as well as the more mundane such as what business licenses to obtain and what insurance cover to purchase. The franchisor will have already done a lot of this work. For example, the franchisor will already have developed a reputation for the business in the market place, will have identified competitive threats and opportunities, incorporating ways of meeting them within the franchise system and will usually have already established relationships with service providers such as financiers.


-> Existing name and reputation

As stated above, you do not need to invest significant time and effort into getting your business known in the marketplace as the franchisor will already have done this for the benefit of the group as a whole.


-> Support when needed

You are not on your own when things go wrong. Got a business problem? Contact your franchisor for assistance. The franchisor will have employed many different specialists within its organization who are there just to assist franchisees successfully operate their businesses. In my 14 years of experience in franchising, the most successful franchisees were those who were not afraid to ask for help when needed. The most unsuccessful were those who thought they knew it all or, for whatever reason, refused to ask for help when they needed it.


-> Group buying power

Depending on the size of the franchise network, the group should benefit from being able to negotiate favorable buying prices because of their ability to generate volume sales for the supplier.


-> Group advertising

By contributing advertising fees into a group fund, individual franchisees are able to benefit from much greater advertising exposure than they could afford if each franchisee had to market their business on an individual basis.


-> Greater knowledge base

The franchisor is likely to have invested in market research for the benefit of the group as a whole. This means the group has a much greater knowledge of their market(s) than does the local "independent" competitor. The results of this market research can be put to good use in the group's advertising and marketing programs.


DISADVANTAGES OF A FRANCHISE

-> Restrictions on autonomy

Because you're buying the rights to participate in a proven "system", the franchisor will be concerned that all franchisees adhere to the system and not operate outside it. After all, if franchisees are free to adhere to the system or not as they see fit, there is no point in buying into a franchise at all. For this reason, for the benefit of the system as a whole, franchisors will generally impose strict controls on things such as the quality and types of products and services that you may offer for sale, the types of local advertising you may undertake, methods of dealing with customers, ethical conduct and the like.

Although I've categorized this factor as a "negative", it can equally be viewed as a positive. As a franchisee, you want to know that your franchisor is not going to allow its franchisees to damage the reputation of the system in which you've invested your hard-earned dollars.


-> Pay initial franchise fee and purchase price

There may be an initial investment ranging from a few hundred to tens of thousands of dollars to buy into a franchise.


-> Pay ongoing royalties

In addition to the initial franchise fee and purchase price, most franchisors will also charge an ongoing royalty for the rights to use the franchised system. These royalties are usually calculated as a percentage of turnover but various other fee structures exist.


-> Restrictions on ability to sell business

Some franchise agreements can restrict quite severely your rights to sell your business to another franchisee. They may impose strict criteria for proposed purchasers and you may find it difficult to find buyers who meet this criteria.


-> May not be able to realize value for business on termination

Some franchise agreements state that upon the expiration or termination of the franchise agreement, the goodwill of the business reverts to the franchisor. This means you may have operated and developed a business over many years and yet, when the franchise agreement expires, you effectively walk away from the business with no further financial compensation.

Under this type of arrangement you must understand going in that you are expected to derive your financial return during the term of the franchise agreement by way of annual profits, not by way of a capital gain at the end of the franchise term.


WHAT TO LOOK FOR IN A FRANCHISE

-> An established franchise system with a good reputation.

-> Comprehensive training systems for both your own management team and other employees.

-> A relatively harmonious relationship between franchisor and franchisees. Some friction from time to time is inevitable in any long-term business relationship but a constant atmosphere of hostility, mistrust and long-running disputes can be a warning sign of an unstable system.

On the other hand, if you're looking at a franchise system of any significant size, a completely harmonious relationship between franchisor and franchisee can be a signal that the management of the franchisor is weak. Although a weak management team on the franchisor side may translate into short-term personal benefits for franchisees, in the long-term it undermines the stability and foundation of the franchise system itself and, ultimately, the value of your investment.


-> Ethical business practices both by franchisor and existing franchisees.

-> An inclusive "partnership" approach on the part of both franchisor and franchisees. This does not mean that the franchisor should not impose controls on the system but you should look for a spirit of goodwill and cooperation, willingness to listen to others' ideas and a climate of open communication at all levels throughout the organization.

-> Exclusive territories - although not crucial, exclusivity of territory (where the franchisor grants you a limited but exclusive territory which is yours alone) can in some cases be a relevant factor to the competitiveness of the business. It would be fair to say that it does not benefit the franchise system if franchisees are forced to compete with each other for limited business.

These are just a few of the major factors you should take into consideration when deciding whether a franchise is for you. Although franchising minimizes the risks of business failure, it cannot not eliminate them entirely and any decision to proceed with a franchised business should only be made after a thorough reading of the franchise agreement and accompanying disclosure documentation and obtaining the professional advice of both your lawyer and your accountant.

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ABOUT THE AUTHOR

Elena Fawkner is editor of A Home-Based Business Online ...practical home business ideas for the work-from-home entrepreneur.

http://www.ahbbo.com

Franchise History

by: Kevin McNally

The history of franchising could be traced back to the beer industry where many brewers allowed certain pubs to obtain leaseholds and sell their beer. Indeed this practice is very common today, especially in the United Kingdom where companies such as Punch Taverns offer an opportunity to would be franchise owners who pay a lease on the property and work closely with the owners at a local and national level.

In the early 1950's franchising suddenly started to increase in popularity and the principles have remained the same throughout the years as the parent company have executive decision over most marketing and trademark issues but the franchise owner enjoys the luxury of being able to piggy back on the success of national chains such as Pizza Hut or Blockbuster.

Modern franchise history is also linked to small work from home business such as Avon, Ann Summers and other party plan based franchises that allow many business minded people the opportunity to start up a low risk franchise and learn tips and techniques that may help when moving onto bigger franchise opportunities.

Many years ago starting a franchise could be a lonely experience but with the birth of the internet you now have access to franchise success stories, franchise case studies and even franchise forums where franchise owners share their success and also highlight franchise opportunities that don't deliver on their promises. Recent history suggests that owning a franchise has even become a good status symbol and many companies now actively recruit on the basis of assessment centre tests and other criteria.

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Quality World Franchise

ABOUT THE AUTHOR

Kevin McNally http://www.qwfranchise.com Quality World Franchise Links to online franchise information and resources