Owning a franchise offers several benefits for entrepreneurs. It also comes with risks and responsibilities.
Before buying a franchise, potential owners should speak with a knowledgeable franchise attorney and consider factors such as these five questions.
Is the franchise system the right one for you?
Each franchise system and franchisor has its own culture, practices, and expectations for the franchise relationship. Potential franchisees should make sure the franchise system they are entering is one where they will be comfortable. An important way for prospective franchisees to investigate and prepare to become part of a system is to speak with current and former franchisees. The Franchise Disclosure Document should include the names and contact information if current franchisees. Potential franchisees should speak with current and former franchisees and ask questions about their businesses, the support they receive from the franchisor, what they would do differently, and more.
What is required?
The investment of time and money varies widely among franchised businesses. It is critical that prospective franchisees understand what is required by the franchisor. Unrealistic expectations at the outset of a franchise relationship can have awful consequences.
The Franchise Disclosure Document should be a helpful tool in understanding the initial and ongoing financial requirements of owning a franchise. An experienced franchise attorney or accountant can work with potential franchisees to help them prepare for franchise ownership.
The Franchise Disclosure Document should also describe how much of a personal commitment the franchisor demands of its franchisees. Most franchisors require franchisees to complete initial and ongoing training during the course of the franchise relationship. The franchise agreement might also specify that a franchise owner spends a certain number of hours each month. Talking to franchisees can also help clarify the amount of time franchisees need to commit to successfully operating the franchised business.
Does the agreement include restrictive covenants?
Franchise agreements generally include restrictive covenants. These provisions place limitations on owners during and for a time following the end of their agreements. These restrictions may affect other existing or planned business ventures.
What is the territory, and how much protection exists?
The franchise agreement will typically include a designated territory. When considering the territory, size is often not the most important issue. Rather, potential franchise owners should look at factors such as the area’s population, median income, spending trends, and competitors in the market. Competition can come from other brands, other franchisees of the same system, or the franchisor itself. Understanding the territorial protections and restrictions is important. A franchise lawyer can help.
How long will the relationship last?
Before buying the franchise and signing the agreement, would-be franchisees often find it helpful to closely review the term of the agreement, their rights to renew, and under what circumstances franchisors may terminate or choose not to renew their franchises.
Through franchises, people have the opportunity to run their own businesses, while having the support and assistance of an established company. Considering all the factors allows entrepreneurs to decide if this business option will best fit their circumstances and goals.