Franchising Strategy

September 15, 2012 in , , , ,

You need a strategy before investing in a franchise. Doing your homework about the franchise first will help you gain a solid understanding of what to expect as well as the risks that could be involved.

Be a Detective
In addition to the routine investigation that should be conducted prior to any business purchase, you should be able to contact other franchisees before deciding to invest. You can also obtain a Uniform Franchise Offering Circular (UFOC), which contains vital details about the franchise’s legal, financial, and personnel history, before you sign a contract.

Know What You’re Getting Into
Before entering into any contract as a franchisee, you should make sure you will have the right to:

  • Use the franchise name and trademark
  • Receive training and management assistance from the franchiser
  • Use the franchiser’s expertise in marketing, advertising, facility design, layouts, displays and fixtures
  • Do business in an area protected from other competing franchisees

In some cases, you may negotiate to have the franchiser help with several factors critical to your business operations:

  • Obtain building permits
  • Purchase or lease equipment, signs and supplies
  • Construct or remodel the business premises

Watch Out for Possible Pitfalls
The contract between the two parties usually benefits the franchiser far more than the franchisee. The franchisee is generally subject to meeting sales quotas and is required to purchase equipment, supplies and inventory exclusively from the franchiser.

As a franchisee, the franchiser often has the right to terminate your business if it fails to operate according to the agreement, becomes delinquent on royalties, or violates other contract specifications.

Seek Professional Help
The tax rules surrounding franchises are often complex, and an attorney, preferably a specialist in franchise law, should assist you to evaluate the franchise package and tax considerations.

An accountant may be needed to determine the full costs of purchasing and operating the business as well as to assess the potential profit to the franchisee.

Get More Information
If you’re considering buying a franchise, you should take advantage of the many resources that are available to help you develop a your business strategy.

In addition, it’s important to know which rules apply to the company that is selling you the franchise. The more you know about this company’s requirements, the better informed you are when evaluating its opportunities.

Information for Sellers

Information on Specific Opportunities
These helpful guides from the Federal Trade Commission provide advice on how to avoid common scams.

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