Franchise Industry Statistics: Most-Popular Industries and Locations

Nov 9, 2018 - Blog by |

When buying a franchise, there are numerous factors that should guide your decision with regard to both (i) the type of franchise you choose, and (ii) where you choose to open for business. Statistics on the top franchised industries and top franchise locations can lean in both directions. On the one hand, it makes sense to choose a popular franchise in a location where people are used to shopping and eating at well-known brands. On the other, if you buy into too much competition in an over-saturated market, you could be setting yourself up for failure. Earlier this year, Franchise Direct published lists of the most-popular franchises and the locations that are most popular for opening a franchise. Neither list includes an explanation of its methodology, so take these for what they are worth. But, the rankings make sense, and even general trends are worth considering when deciding on the franchise opportunity that seems like the best fit for you. Most-Popular Franchised Industries According to Franchise Direct, as of May 2018, the 10 most-popular franchised industries in the United States were as follows: Food Franchises Children’s Franchises Coffee Franchises Home-Based Franchises Automotive Franchises Business Opportunities Vending and ATM Franchises Restaurant Franchises Cleaning Franchises Pet Franchises Notably, there is a bit of ambiguity in Franchise Direct’s list, as the list includes broad categories in addition to niche industries that could fall into one or more categories. For example, while “Children’s Franchises” ranks at number two, Retail Franchises come in just outside […]

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4 Special Considerations for Purchasing a Home Services Franchise

Nov 2, 2018 - Blog by |

Buying a home services franchise allows you to be your own boss; and, for many first-time franchisees, it means using your home as your “headquarters” and driving to job sites in your local area. For many franchise candidates, it offers the perfect blend of independence and day-to-day interaction. Many home services franchises also offer relatively low barriers to entry (i.e. a modest initial investment), and the time from signing a franchise agreement to opening for business can be relatively short. But, like all franchise opportunities, home services franchises also come with a variety of risks. If you are thinking about getting into the business of remodeling, repairing, upgrading or protecting other people’s homes, here are some key legal considerations to keep in mind: 1. Liability and Auto Insurance If you (or your employees, if any) will be going into other people’s homes and installing new materials, using cleaning solvents or pesticides, or making substantial modifications, the risk of something going wrong is something you need to consider. The best way to mitigate your risk of liability due to a personal injury or property damage claim (aside from conducting thorough due diligence) is to purchase adequate liability insurance. Since you will be driving on a daily basis, you will want to make sure you have adequate insurance coverage as well. Your state’s mandatory minimum coverage requirements may not be enough if you cause a serious accident, and you will likely need to purchase commercial auto insurance rather than a standard personal […]

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What Does it Really Mean to Be Named a “Top Franchise”?

Oct 31, 2018 - Blog by |

Franchisors love rankings. Visit any well-known franchisor’s website, and you are bound to see a laundry list of rankings purporting to provide third-party validation of the franchisor’s superiority in its niche, if not in the franchise industry as a whole. Similarly, a Google search for “franchise rankings” provides links to web pages and articles with titles like: Top 100 Global Franchises 2018 Franchise 500 Ranking Top 100 Franchises – Rankings of Global Franchises 2018 Rankings of the Best Franchises America’s Best and Worst Franchises to Buy Top 50 Franchises in the World Top 100 Franchises of 2018 As a prospective franchisee, how much stock, if any, should you put in a particular opportunity’s ranking as a “top franchise”? Understanding Franchise Rankings When considering what value to place on a ranking, it is always important to consider the source. As a general rule, legitimate media outlets (such as Forbes.com and Entrepreneur.com) will be more reliable than websites that exist solely to sell advertising (often for their own “top-ranked” franchise opportunities). A site that seeks to have some legitimacy behind its rankings should disclose the source of its data and its methodology as well. For example, in compiling its list of “America’s Best and Worst Franchises to Buy,” Forbes.com relied on five years’ worth of statistical data compiled by FRANdata examining system sustainability, system demand, value for investment, franchisor support and franchisor stability. On the other hand, the Forbes.com list also relies on data that are a minimum of two years old, […]

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Do Franchise Scams Still Exist?

Oct 17, 2018 - Blog by |

Although scams exist in virtually all industries, in today’s world, franchising is arguably one of the exceptions. If you understand the basics of the franchise model, and if you do your due diligence before paying an initial franchise fee, the truth of the matter is that you should be able to spot and avoid any scams pretty easily. For this reason, franchise scams have largely gone by the wayside, and those that still exist barely resemble legitimate franchise opportunities. Of course, this does not mean that your success as a franchisee is guaranteed. There is a big difference between a scam and an unprofitable franchise. Franchisees fail, and even entire franchise systems can go off of the rails, but most franchisees who lose their investments will need to sue for reasons other than being sold on a fraudulent scam. Making Informed Decisions as a Prospective Franchisee Buying a franchise is a complex investment, and it needs to be treated accordingly. This starts with understanding franchisors’ disclosure obligations. Under the Federal Trade Commission (FTC) Franchise Rule, all franchisors are required to you with a Franchise Disclosure Document (FDD), “14 calendar-days before you sign a binding agreement with, or make a payment to, the franchisor or an affiliate in connection with the proposed franchise sale.” If you are being asked to sign an agreement or pay money and you have not been provided with an FDD, then you are not being offered a legitimate franchise. But, once again, in today’s world this […]

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Is Franchise Regulation a Myth?

Oct 3, 2018 - Blog by |

Blue MauMau recently published an article entitled, “Shattering the Myth: The Franchise Industry Is Heavily Regulated?!?” It is a click-worthy headline, no doubt, but what about its implications: Is franchise regulation really a myth? The “Myth” of Franchise Regulation The article goes on to state some indisputable, and relevant, facts about franchise regulation. For example, while the franchise industry falls within the oversight of the Federal Trade Commission (FTC), the FTC does not actually review franchisors’ Franchise Disclosure Documents (FDDs). Additionally, although the FTC’s enforcement efforts targeting franchisors are minimal, the FTC’s Franchise Rule does not provide franchisees with a private right of action. In the words of the article’s author, Keith Miller, “Who would consider a filled-out document, which is actually not reviewed by any regulatory agency, to be a heavily regulated document?” The article also goes on to note that there is no federal franchise “relationship” law, and less than half of all states have these laws in place. However, the article omits any reference to state franchise “disclosure” laws, of which there are several, and many of which do require review of franchisors’ FDDs. There are some other issues with the article as well. For example, the article asks rhetorically, “[W]hy do the vast majority of franchise agreements require the franchisee sign it as an individual and not as a business?” While this is not directly relevant to the issue of regulation, it is also not entirely accurate. Legitimate franchisors today universally allow franchisees to form business […]

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An Example of What Not to Look for in a Franchise System

Sep 28, 2018 - Blog by |

If you are thinking about buying a franchise, you probably have at least some idea of what to look for in a franchise opportunity: Brand recognition, system stability, reasonable fees, happy franchisees – these are all key characteristics of a successful franchise system (of course, as a franchisee, your success is never guaranteed). But, do you also know what not to look for? Are you aware of the types of red flags that would (or, at least, should) send most prospective franchisees in search of a different opportunity? If not, this recent article on Blue MauMau is worth a read. These are the Hallmarks of a Toxic Franchise System The article highlights the recent downturn of the Dickey’s BBQ franchise system. According to Blue MauMau: “In fiscal year 2017, [the franchisor] opened 88 Dickey’s franchised outlets, but [73] ceased operations, according to its FDD.” “But[,] 2018 made 2017 look good. In the latest year, the brand opened 72 new franchised units, but had 89 terminations and 24 ceased operations, for a net store loss of 41 units.” With 562 franchised units at the start of the year, these 2018 figures represent a reduction in size of more than seven percent; and, adding in transfers, the total “churn” (the number of franchisees leaving the system) was an “alarming” 28 percent. “Many [franchisees] said they were unprofitable, and should close, but had to weigh the decision of whether they would lose more money staying open or being sued for 5 years of […]

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What Does it Mean if My State Has (or Doesn’t Have) a Franchise Law?

Sep 21, 2018 - Blog by |

Nationwide, 21 states and Washington D.C. have laws in place that govern the franchise disclosure process, the franchise relationship or both. Due to the heavily one-sided nature of franchising, these laws are designed to protect franchisees by helping ensure that they receive accurate information, and that they have at least some opportunity to protect their investment if things do not go as planned. The states that have franchise laws are: Arkansas California Connecticut Delaware Hawaii Idaho Illinois Indiana Iowa Kentucky Maryland Michigan Minnesota Mississippi Missouri Nebraska New Jersey Tennessee Virginia Washington Wisconsin If your state has a franchise law, the implications for your franchise will depend on the type of law (disclosure, relationship or both) and the scope of its provisions. Franchise laws vary widely from state to state, and some provide significantly more protection than others. Examples of State Franchise Law Provisions 1. Franchise Disclosure Requirements (and Consequences) In states with franchise disclosure laws (i.e. California, Illinois and Maryland), franchisors must meet certain requirements in addition to those imposed under the Federal Trade Commission’s (FTC) Franchise Rule (the FTC Franchise Rule establishes the nationwide standard for the 23-item Franchise Disclosure Document (FDD)). One of the most-common provisions in these laws is an extension of the “cooling off” period before a franchisee can be asked to sign a franchise agreement. Potential remedies for disclosure violations under state franchise laws can include an option to terminate the franchise; although, the circumstances in which this option is available are usually pretty limited. […]

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I Am Fed Up With My Franchisor. Can I Terminate My Franchise?

Sep 14, 2018 - Blog by |

It finally happened. You’ve decided that enough is enough, and you are ready for the nightmare of franchise ownership to be over. Your hopes have been dashed. Your expectations have gone unfulfilled, and your franchisor has gone silent as you have struggled to keep up with your monthly expenses. Unfortunately, this is an all-too-common reality for franchisees in all types of franchise system. Despite the industry-published statistics on franchisee success and the promises your franchisor made before you signed your franchise agreement, building a profitable franchise is not easy. A significant percentage of franchisees close before the initial terms of their franchise agreements expire, and these “failures” are often due to the fact that franchisors fail to uphold their end of the bargain. So, you are ready to get out. What do you need to know? What You Need to Know about Terminating Your Franchise 1. Franchise Agreements are Long-Term, Legally-Binding Contracts For most fed-up franchisees, the initial prognosis is not good. A franchise agreement’s initial term is both a minimum and a maximum, which means that (i) you are bound until the agreement expires, and (ii) when your agreement expires, it is largely up to your franchisor whether you get to renew. How many months (or years) are left in your franchise agreement’s term? If you are close, you may be able to find a way to wait it out; or, you may be able to use this as leverage in termination negotiations with your franchisor. But, until you […]

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5 Risks Associated With Choosing a New Franchise System

Sep 7, 2018 - Blog by |

When buying a franchise, you need to make a number of important decisions. One of these decisions is: Should you buy into a well-established franchise system; or, should you get in on the ground floor of an up-and-coming franchised brand? Both options offer potential benefits. While buying into a well-known franchise can offer instant brand recognition, buying into a new franchise system can reduce the risk of territorial encroachment and intra-brand competition.  Established franchisors offer experience, while new franchisors may offer fresh ideas and a more-contemporary approach to doing business. Should You Buy into an Up-and-Coming Franchise? But, both options come with potential drawbacks as well. Here are five risks associated with choosing a new franchise system: 1. Lack of Franchising Experience Franchising is a unique business model, and not everyone who succeeds in building a retail brand will be successful operating as a franchisor. When you are relying on a franchisor for guidance and operational support, it can be challenging to work with executives and personnel who are not experienced in managing a franchise system. 2. Lack of Brand Recognition In most cases, one of the primary benefits of buying a franchise is to benefit from the franchisor’s brand recognition. Instead of promoting a new brand that no one has ever heard of, you get to benefit instantly from the goodwill that the franchisor has cultivated over years of consistent marketing and providing quality service to its clients or customers. But, if you will be the first franchisee in […]

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4 Special Considerations for Purchasing a “Green” Franchise

Sep 5, 2018 - Blog by |

“Green” franchises became mainstream a handful of years ago, and their popularly has held steady ever since. From commercial cleaning and pressure washing franchises to franchises that install synthetic turf systems and home efficiency technologies, if you want to start a business that is eco-friendly, there is probably a franchise opportunity that will appeal to you. But, as with all franchise opportunities, when purchasing a “green” franchise, it is important to perform your due diligence. This means talking to the franchisor, talking to current and former franchisees, and hiring a franchise lawyer to review the Franchise Disclosure Document (FDD) and franchise agreement. In addition to the legal concerns that apply to franchise opportunities generally, here are some “green”-specific considerations to keep in mind: 1. Substantiation of “Green” Advertising Claims When “green” businesses started popping up with increasing frequency, so did references to the concept of “greenwashing.” This term refers to businesses spinning, misrepresenting, or selectively publishing information in order to make themselves appear “greener” than they really were. Significant cases of greenwashing can constitute false advertising, which is a form of consumer fraud As a franchisee, you will likely use advertising materials that have been prepared by your franchisor. But, this does not necessarily mean that you are immune from liability for false advertising. Your franchisor should be able to readily substantiate its claims of environmental friendliness; and, if it can’t, your best option may be to consider a different franchise opportunity. 2. Mandatory Suppliers For product-based franchises, the commitment […]

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