Own ‘Em All or Franchise ‘Em Out?

Nov 14, 2017 - Blog by |

Own ’em all or franchise ’em out? Or, do some of each, and dual-distribute? According to famous Economist Ronald Coase, firms exist to minimize transaction costs. On its face, this theory, even though it is from 1937, generally explains whether particular brands or firms decide to operate as a chain or franchise. In essence, the fewer transaction costs the more likely a firm will contract for distribution services with third parties in the market (thru franchise contracts, for instance) versus doing the distribution functions in-house. Coase’s theory can also explain to some extent the proportion of company-owned stores in any given system that has chosen to offer franchises. However, the empirical evidence regarding such franchise integration decisions does not always dovetail with the theory. Indeed, a recent debate between two CEOs of two smaller pizza chains shows that decisions regarding whether to franchise, or the degree of dual-distribution in a particular franchise system, can derive from individual personality predisposition, and not explicit economic theory. Blaze, &Pizza CEO’s Square Off in Franchise Debate. For instance, Mizes, who explained that he wanted “to expand as fast as possible”, grew his company through franchising. In contrast, Lastoria, who felt that “the goal was to embellish the uniqueness of each restaurant” developed his business through company-owned stores. Interestingly, both Mizes and Lastoria felt that “it would be difficult” to ‘have it both ways” by employing both strategies simultaneously.

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Goldstein Law Firm Selected for Exclusive Membership in Leaders in Law

Oct 30, 2017 - Blog by |

We are pleased to announce that firm founder Jeffrey M. Goldstein has recently been selected for exclusive membership in Leaders in Law. Mr. Goldstein has been selected as the exclusive member for the USA – New York region for 2017-2018. He is currently one of only for franchise lawyers selected for inclusion worldwide, and he is currently the only franchise lawyer selected in the United States. About Leaders in Law Leaders in Law provides business owners with a streamlined way to find attorneys in their areas of need. As stated on the organization’s website: “Leaders in Law is the ideal way to find a lawyer anywhere in the world specialising in the area of law with which you need assistance or advice. Very few people have a detailed knowledge of lawyers all around the world, but Leaders in Law has painstakingly put together a database of lawyers in 120 different countries and covering 42 different areas of law. Our selection process is so rigorous you can be assured that you will find a Leader in Law with maximum expertise.” With more than 700 attorneys selected for inclusion worldwide, there are currently just four franchise lawyers who have been recognized as Leaders in Law. Along with Mr. Goldstein in the United States, these prestigiously-selected attorneys are located in France, Kuwait and Azerbaijan. About Jeffrey M. Goldstein Jeffrey M. Goldstein is a globally-recognized franchise lawyer who has spent the last three decades exclusively representing franchisees and dealers. The Goldstein Law Firm is […]

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Women in Franchising: Notable Statistics on Female Franchisees

Sep 29, 2017 - Blog by |

Earlier this year, Franchise Times reported the results of a study conducted by Franchise Business Review which examined the rising trend of female franchise ownership. The article highlights some interesting statistics, and it shows just how big of a role female franchisees play in current success and the projected future growth of the franchise industry. Here are some of the most noteworthy numbers from the survey: 63,000 According to Franchise Times, female franchisees earn an average income of $63,000 per year. 6,400 Franchise Business Review surveyed 6,400 female franchisees, representing only a portion of the female franchise owners operating today. 85 85 percent of female franchisees said they would recommend their brands to others considering franchise opportunities. 84 84 percent of female franchisees said that they respected their franchisors; however, only 80 percent said that they believed their franchisors acted “with a high level of integrity.” 74 According to Franchise Business Review, 74 percent of female franchisees say they would “do it again” knowing what they now know as a result of their experience in the franchise industry. 60 Sixty percent of female franchisees surveyed had a bachelor’s degree or higher. Seventeen percent held an associate’s degree, and 20 percent reported having only a high school education. 58 Just over half of female franchisees reported that their franchised businesses are meeting their financial expectations. 51 Child services is the only franchise sector in which the majority of franchise owners (51 percent) are women. Travel and hospitality has an even split […]

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When is the Right Time to Sue Your Franchisor?

Sep 27, 2017 - Blog by |

When you purchased your franchise, you never expected to in up in court. You did your due diligence, you read the statistics saying that most franchisees were satisfied with their businesses, and you were confident that you could make your franchised outlet a success. If your franchise is struggling, you are not alone. Building a successful business is not easy, and many franchisees find out that their relationships with their franchisors ultimately do more harm than good. As a result, they end up looking for a way out before their franchise agreement expires, and this often means exploring their options for litigation. Franchise Dissatisfaction: When Should Franchisees Take Legal Action? Of course, even under the most contentious of circumstances, full-blown courtroom litigation is generally a means of last resort. There are more-amicable alternatives available, and these will often offer more cost-effective and mutually-beneficial opportunities for resolution. That said, the issues that spur alternative dispute resolution (ADR) methods and litigation are generally the same, and dissatisfied franchisees should take the time to gain a clear understanding of all of the options that are on the table. If you are facing a dispute with your franchisor or seeking a way to terminate your franchise, the following are some examples of some potential grounds for legal action: State and federal disclosure violations, including inaccurate or incomplete information in a Franchise Disclosure Document (FDD) Imposition of illegal price-fixing arrangements and other illegal competitive restrictions Improper refusal to renew or consent to transfer of a […]

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Thinking about Buying an Existing Franchise? Here are Four Considerations to Keep in Mind

Sep 22, 2017 - Blog by |

When buying an existing franchised business, the process can involve a number of franchise and non-franchise legal issues. Here is an overview of some of the key issues to consider when evaluating a potential purchase of an existing franchise: Transfer Conditions Franchisors like control. One of the ways they exercise this control (among many, many others) is by placing conditions on franchisees’ ability to transfer their franchise rights. When communicating with your prospective seller, it will be important to gain a clear understanding of where he or she is in the process of obtaining approval for the transfer. As a prospective buyer, you will likely need to go through the franchisor’s approval process for new franchisees as well, and you should make sure you understand the requirements and timelines involved. Remaining Term and Renewal Rights All franchise agreements are time-limited. The length of time a franchisee is granted the right to operate is known as the franchise “term.” Before buying an existing franchise, you should make sure you know the amount of time remaining in the term, and you should factor this into your financial calculations. Likewise, most franchise agreements include “rights” to renew. If the seller’s franchise agreement includes a renewal provision (or if the seller is currently operating in a renewal term), you will want to make sure you have a clear understanding of your rights and obligations with regard to renewal. However, as we discuss below, you will also need to understand whether you will be required […]

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Should You Join (or Form) a Franchisee Association?

Sep 20, 2017 - Blog by |

As a franchisee, it is easy to feel like you are alone on an island. When you run into issues (and particularly issues with your franchisor), knowing where to go for help can be a challenge. In some franchise systems, one option may be to join a franchisee association. While these associations were once vehemently opposed by franchisors who feared the collective ranks of their franchisees (as is still the case in some troubled franchise systems), today, many franchisors acknowledge franchisee associations, and in some cases they may even turn to these associations for information and guidance. As a result, under the right circumstances, joining a franchisee association can have benefits on numerous levels, and it may make sense for both new and more-experienced franchisees to get involved. Three Questions to Ask When Considering a Franchisee Association But, as with most things in the world of franchising, there are two sides to association involvement. So, should you join (or form) a franchisee association? Here are some initial questions to consider: Q: What type of association are you considering? There are different types of franchisee associations. There are general associations (which are most common in large franchise systems) that represent the collective interests of their members, and then there are special-purpose associations that organize in response to a particular issue with a franchisor. Since there are only limited protections for franchisee associations under state law (and no specific protections under federal law), franchisees who are considering association membership must be aware […]

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Good or Bad? A Closer Look at Some Franchise System “Benefits”

Sep 15, 2017 - Blog by |

When considering franchise opportunities, it is important to understand that you are involved in a sales process. If you are a strong candidate, franchisors will want to sell you on their systems, and you will work with salespeople who get paid on commission to entice prospective franchisees to enter into franchise agreements. During this process, you will likely hear about several “benefits” that each franchise system has to offer. But, in many cases, these benefits can actually be limitations and restrictions in disguise. Let’s take a look at some examples: Benefit or Drawback: Common Selling Points for Franchise Opportunities 1. Designated Suppliers In product-based franchises and franchises that offer a mix of products and services (such as fitness gyms and cleaning franchises), it is common for franchisors to require their franchisees to make purchases from designated suppliers. There are a number of ways that this can be promoted as a benefit, from maintaining uniformity among franchisees to limiting your sourcing burdens and ensuring the quality of the products that go on your shelves. However, designated (or mandatory) supplier provisions come with drawbacks as well. For example, suppose your franchisor’s designated supplier falls behind on deliveries. Or, what if its products simply do not meet your (and your customers’) expectations? If you are contractually bound and unable to consider alternatives, these could present real problems for your franchised business. 2. Advertising Funds A system-wide advertising fund can provide significant benefits for the right franchisees in the right franchise systems. But, before […]

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Questions to Ask Your Franchise Attorney

Sep 13, 2017 - Blog by |

Whether you are considering a franchise opportunity, preparing to renew or transfer your franchise, or facing a potential dispute with your franchisor, it is important to have experienced legal representation. Not only are the legal issues involved complex, but franchisors often hire attorneys from big law firms to draft their agreements and deal with their franchisees. As a result, franchisees need an attorney who can level the playing field. When choosing an attorney to review your franchise agreement or protect your interests in negotiations, arbitration or litigation, you need to make an informed decision. The stakes are high, and you cannot afford to choose your attorney simply because he or she buys ad space on the Internet and claims to practice franchise law. Before you commit to hiring an attorney to handle your franchise-related legal needs, here are some questions you should seek to have answered: 5 Questions to Ask Before Hiring a Franchise Attorney 1. How long have you practiced franchise law? Generally speaking, the more experience an attorney has, the better. The most-experienced franchise attorneys have decades of experience in their chosen field. 2. Do you exclusively practice franchise law? Franchise law is a unique field with specific laws that apply at the state and federal levels. The state of the law – and the state of the franchise industry itself – are constantly changing, and an attorney who devotes his or her entire practice to franchising is likely to have a much better understanding of the legal […]

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Why Prospective Franchisees Need to Read (and Keep) the FDD

Aug 31, 2017 - Blog by |

The Franchise Disclosure Document (FDD) is a legal document that franchisors are legally-required to provide to new franchisees at least 14 calendar days (or longer in some states) before they sign a franchise agreement. While scouring the pages of an FDD can seem like a daunting task, state and federal laws require franchisors to provide prospective franchisees with these documents for a reason, and anyone considering a potential franchise opportunity should be sure to carefully review all 23 “Items” of the franchisor’s FDD. Still not sure that you want to try to conquer the FDD? Here are 10 reasons why it will be worth your time: 10 Reasons to Read Your Franchisor’s FDD 1. You Can Learn about the Franchisor’s History and Key Personnel How long has the franchisor been franchising? What experience do its executives and key personnel have both (i) in the business being franchised, and (ii) in the franchise industry? You can find these answers in Items 1 and 2 of the FDD. 2. You Can Find Out if the Franchisor Has Been Sued Is the franchisor in litigation with any of its franchisees? Is it facing a lawsuit that could lead to insolvency? Items 3 and 4 of the FDD include important information about litigation and the franchisor’s bankruptcy history (if any). 3. You Can Find Out How Much You Have to Pay Items 5 and 6 of the FDD disclose the fees you will need to pay to the franchisor (including the initial franchise fee, […]

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What Makes a Good Franchisor?

Aug 29, 2017 - Blog by |

What makes a good franchisor? It is a simple question, but most people have different answers. Do you value strong operational support? Or, do you prefer to operate under an established brand but to otherwise be left alone? Do you want your franchisor’s executives to be franchise-industry veterans? Or, are you looking for an innovative opportunity that has gained traction by breaking the mold (within the confines of the highly-regulated franchise industry)? If you are considering a first-time franchise opportunity, it is understandable that you are looking for guidance on the factors to consider when evaluating prospective franchisors. Here are some tips that may help you in making an informed decision: 5 Tips for Evaluating Prospective Franchisors 1. Assess the Owners’ and Executives’ Experience When you are relying on a franchisor for success, the people behind the company matter. Some franchisors are owned and run by individuals who were successful in building a brand and business model, but who lack any prior knowledge or experience in franchising. Then, there are the franchisors that hire industry veterans who have previously built and sold large franchise systems. One option is not necessarily better than the other, and you need to decide what you value most in the leadership of your franchise organization. You can find information about the franchisor’s owners, executives, directors and managers in Item 2 of the Franchise Disclosure Document (FDD). 2. Consider the Number of Years the Franchisor Has Been Franchising The age of the franchise system may be […]

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