Things to consider when purchasing a franchise
Often you may find a thriving business in another community and believe that it would also do well where you live. How do you bring the same concept to your own community? A franchise agreement is one way. Companies looking to expand will frequently set up franchises to grow their business and expand their brands.
In a struggling economy, many franchisers are offering more training for owners. Usually before a new location opens, an owner will go through in-depth training to learn all the aspects of the business. Some companies also offer more time in the classroom to keep established owners up-to-date and ready to open additional franchise locations.
For example, Culver’s has a 16-week course for owners before they are able to open a restaurant. Courses cover everything from ringing up an order at the cash register to marketing. Intense training ensures that the owner is ready and prepared for opening a new location.
One benefit of a rigorous franchise-training program is that it can be easier to get bank financing. Risk adverse lenders and underwriters look favorably on training that sets up an owner up for success.
Benefits of a franchise
For entrepreneurs, buying a franchise provides a road map for how to operate a successful business. You do not need to recreate everything from the ground up. Generally, the franchisor will assist with finding a location, initial training, an operations manual, marketing and advice on management and employment issues.
Buying a franchise can limit initial investment risks because of association with an established brand. With any franchise deal, it is important to seek legal counsel of an experienced business law attorney in negotiating the structure of the agreement.
Franchisor’s disclosure document
Before purchasing a franchise, you will receive lots of information. The most important document is the franchisor’s disclosure document, which you must receive at least 14 days before you sign a contract or pay any money. The document provides information on the franchisor’s background, the business and litigation history and any bankruptcies.
Initial and ongoing costs will also be included in the disclosure document including, royalties, advertising costs, start up fees, initial inventory, signs and equipment. Other costs to ask about are operating licenses, back office costs, employee salaries and benefits.
A business attorney can advise as you negotiate and explain your obligations under the franchise agreement. Many moving parts are involved in the purchase of a franchise and an experienced lawyer will often spot future issues and suggest ways to address them before the purchase is final. Relying on your own lawyer and accountant rather than the franchisor’s counsel ensures your rights are protected.