Franchise Legal Considerations

<p>Franchise Legal Considerations<p>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.<p>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.<p>In particular, the disclosure rule requires that the franchisor provide information about:<p>(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.<p>(b) Any lawsuits or previous bankruptcies in which the franchisor, its officers, directors, and management personnel have been involved.<p>(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.<p>(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.<p>(e) Any assistance available from the franchisor or its affiliates in financing the purchase of the franchise.<p>(f) Restrictions on the goods or services franchisees are allowed to sell and any restrictions on the customers with whom they may deal.<p>(g) Any territorial protection to be granted the franchisee.<p>(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.<p>(i) Any training programs provided to the franchisees.<p>(j) Any involvement of any celebrity or public figures in the franchise.<p>(k) Any assistance provided by the franchisor in selecting the site for the franchisee.<p>(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.<p>(m) The financial statements of the franchisors.<p>(n) The extent to which franchisees must personally participate in the operation of the franchise.<p>(o) The basis for any earnings claims made to the franchisee, including the percentage of existing franchises that have achieved the results claimed.<p>(p) The names and addresses of other franchisees.<p>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.<p>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!<p> 2002-03. GlobalBX. <a rel="nofollow" href="http://www.globalbx.com." target="_blank">http://www.globalbx.com.</a> 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.<p>Jim Brown is Director of Marketing at GlobalBX, <a rel="nofollow" href="http://www.globalbx.com." target="_blank">http://www.globalbx.com.</a> 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.</p>

 

What To Consider Before Buying A Franchise

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. Make sure you understand all of the provisions.

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. Make sure you understand all of the provisions.

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.

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.

Shopping For A Franchise

Shopping for a franchise is easy if you know what you are doing. You can choose between radio adverts, newspaper adverts, personal recommendation, Internet, or visit a franchise exhibition. Attending a franchise exhibition allows you to view and compare a variety of franchise possibilities. Keep in mind that exhibitors primarily want to sell their franchise systems. Before you attend, research what type of franchise best suits your investment limitations, experience, and goals.

Shopping for a franchise is easy if you know what you are doing. You can choose between radio adverts, newspaper adverts, personal recommendation, Internet, or visit a franchise exhibition. Attending a franchise exhibition allows you to view and compare a variety of franchise possibilities. Keep in mind that exhibitors primarily want to sell their franchise systems. Before you attend, research what type of franchise best suits your investment limitations, experience, and goals.

Do not be pushed into making a rash decision. Here are some useful tips for you to consider in helping you decide which franchise is best for you:

Investment Capital: An exhibitor may tell you how much you can afford to invest or that you can't afford to pass up this opportunity. Before beginning to explore investment options, consider the amount you feel comfortable investing and the maximum amount you can afford.

Right Franchise: An exhibitor may attempt to convince you that an opportunity is perfect for you. Only you can make that determination. Consider the industry that interests you before selecting a specific franchise system. If the industry does not appeal to you or you are not suited to work in that industry, do not allow an exhibitor to convince you otherwise.

Compare Deals: Visit several franchise exhibitors engaged in the type of industry that appeals to you. Listen to the exhibitors' presentations and discussions with other interested consumers. Exhibitors may offer you prizes, free samples, or free dinners if you attend a promotional meeting later that day to discuss the franchise in greater detail. Do not feel compelled to attend. Rather, consider these meetings as one way to acquire more information and to ask additional questions. Be prepared to walk away from any promotion if the franchise does not suit your needs.

Verify Claimed Earnings: Some franchisors may tell you how much you can earn if you invest in their franchise system or how current franchisees in their system are performing. Make sure you ask for and obtain written substantiation for any income projections, or income or profit claims. If the franchisor does not have the required substantiation, or refuses to provide it to you, consider its claims to be suspect.

Do Not Be Rushed: You may be told that the franchisor's offering is limited, that there is only one territory left, or that this is a one-time reduced franchise sales price. Do not feel pressured to make any commitment. Legitimate franchisors expect you to compare deals. A good deal today should be available tomorrow

Check Documentation: Do not sign any contract or make any payment until you have the opportunity to investigate the franchisor's offering thoroughly Study the disclosure document. Because investing in a franchise can entail a significant investment, you should have a lawyer review the disclosure document and franchise contract and have an accountant review the company's financial disclosures.

 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

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:

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.

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.

Franchises - A proven Business System

Franchises offer the first time business owner a proven and successful business opportunity. If you are looking to start your own business for the first time, franchises provide you with the greatest opportunity for success. When you purchase a franchise from the "Franchisor", and become a "Franchisee", you are not only purchasing a business, but a complete business system.

Franchises have over a 90% success rate, compared to about a 15% success rate for those indidviduals starting their own businesses from scratch. Franchises have spent years developing and modifying their systems of doing business, and they pass that "trail and error" knowledge on to their Franchisees. Initial training exists for every aspect of the business, which can last anywhere from 1 to 2 weeks. Training usually takes place at one of the franchises existing locations or their corporate office. Training may consist of the day to day "hands-on" positions required to run the business, to marketing, hiring, purchasing, bookkeeping, management and supervisory techniques.

Assistance is available with "demographic" reports to aid in selecting the right location. Support is also available for lease negotiation and "build outs", if necessary. Pre-opening strategies and marketing materials for newspapers, print-ads, handouts, yellow page advertising, radio and even TV ads are are complete and professional.

During the first few weeks of business the Franchisor may provide its own personel to the Franchisee for assistance and support. This helps ensure a smooth opening. Additionally, once the business is open, a Franchisee will receive ongoing assistance and support from the Franchisor, not to mention support from the other franchisees, all who are all just a phone call away.

Once a year or more Franchise Meetings occur between the Franchisor and their Franchisees to exchange ideas, develop new techniques and startegies, and to compare progress and profits.

All of this is not free, of course. Franchisees normally pay the Franchisor an initial Franchise Fee, plus monthly royalties which can range from 3% - 12% of their total income per month. But it can be well worth it!

In owning a Franchise, you are in business for yourself, but you are not by yourself!

Ernie Horning is a Franchise Consultant and owner of multiple businesses. He is a former franchise owner, and writes articles for www.businessventureinc.com.

(Copyright 2005-ehbvi-www.businessventureinc.com)

Franchises - Success and You

Many people believe owning a franchise will make them rich, financially secure, and provide the life of their dreams. True, franchises have an extremely high success rate, and a very high satisfaction rate among their owners. But is that success guaranteed when you purchase a franchise? NO!

There are no guarantees in life, or in franchises. There are those occasions when franchises are not profitable, lose money, and close. Although most franchises provide a proven business system, not all OWNERS are proven.

Many enter into the franchise system, thinking all they have to do is come up with the money to get the business open, and it will run itself and they will make money. I don't how many times I have had a prospective franchisee say to me, "I want a franchise that makes a lot of money". Well, I have news for you, it's hard work.

You have to WORK the system provided by the franchise. Many franchisees have impressive backgrounds and education, many from established positions with top companies. However, some have a difficult time doing "whatever it takes", to run the business. Whether it be marketing or sales, to taking out the trash and cleaning the restrooms, nothing should be beneath you to keep your business operating and profitable.

If you want be a franchisee, accept the fact that you will have a "franchisor" guiding and directing you. They have at much at stake as you, and their reputation is on the line. Remember your success is their success, so they will provide feedback, support, and direction with your business. However, some new franchisees, coming from corporate positions, may feel they don't need any direction and know best on how to run the business. This can be disastrous. The better franchises have spent years developing their systems, FOLLOW THEM!.

Learn every job and every position of your business. Be able to step in and help when needed. Be ready when employees quit, don't show, or simply think you can't mange without them. I can tell you from personal experience, all these things happen. The last thing you want is one of your employees having an upper hand with YOUR BUSINESS, because you can't do their job.

Be able to accept the fact that you don't "know it all", regardless of your past experiences and expertise. Listen to your franchisor and other franchisees. It is YOUR BUSINESS, but they have been doing it longer. Utilize their knowledge and expertise. The wrong attitude coupled with a few bad decisions may jeopardize your investment and your dream.

Remember, the one major variable in a franchises success is you. A franchise can be a very rewarding and profitable business when operated the right way, by the RIGHT PERSON!

(Copyright 2005-ehbvi-www.businessventureinc.com)

Ernie Horning is a Franchise Consultant and owns multiple businesses. He is also a former franchise owner, and writes articles for http://www.businessventureinc.com