By BuildMyBiz on September 15th, 2012
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.
- Franchise and Business Opportunity Rule: Buyers’ Guide
Offers a guide to the Federal Trade Commission’s (FTC) Franchise and Business Opportunity Rule, which requires franchise and business opportunity sellers to give you specific information for making an informed decision.
- Franchise and Business Opportunity Rule: FAQs for Buyers
Lists most frequently asked questions and answers about franchise and business opportunities, including information on how to get a pre-sale disclosure document and legal assistance.
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
- Guide to the Federal Trade Commission Franchise Rule
Explains how franchisers and businesses must comply with the FTC’s Franchise and Business Opportunity Rule.
- Recent Franchise Rule Opinions (1995 to Present)
Lists informal staff advisory opinions in response to requests for interpretation of FTC’s Franchise Rule.
- State Pre-Sale Disclosure Requirements: Business Opportunities
Provides information on states that have laws prohibiting sales of business opportunities unless the seller gives potential purchasers a pre-sale disclosure document that has first been filed with a designated state agency.
- State Pre-Sale Disclosure Requirements: Franchises
Offers information on states that have laws requiring franchisers to provide pre-sale disclosures.
Information on Specific Opportunities
These helpful guides from the Federal Trade Commission provide advice on how to avoid common scams.
- Buying a Janitorial Services Franchise
Provides helpful advice to individuals interested in buying into a janitorial franchise. Also includes information on how to avoid scams and legal problems.
- Costly Coupon Scams
Explains fraudulent business opportunities and work-at-home schemes that offer big earnings by selling coupon certificate booklets or cutting coupons at home.
- Lotions and Potions: The Bottom Line About Multilevel Marketing Plans
Gives an overview of multilevel marketing plans that may or may not be legal.
- Medical Billing Opportunities: Worth a Second Opinion
Identifies medical billing opportunities that often do not provide pre-investment information required by law.
- Multilevel Marketing Plans
Covers the risks involved in multilevel marketing opportunities, which are sometimes illegal.
- Net Based Business Opportunities: Are Some Flop-opportunities?
Advises consumers who are considering internet-related business opportunities.
- Take This Scheme and Stuff It: Avoiding Envelope-Stuffing Rip-Offs
Provides information on how envelope-stuffing business opportunities actually work.
- The Gifting Club-Gotcha
Explains the pyramid scheme of Gifting Clubs.
- Work-at-Home Schemes
Offers information on what to look for when considering Work-at-Home business opportunities.
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