Franchise Articles

There are a number of obvious risks involved in buying a franchise: Your business could fail. You could lose your investment. You could end up in litigation with your franchisor. But, along with these risks, there are a number of hidden risks as well. As a prospective franchisee, here are five important legal considerations to keep in mind: 1. The Franchisor Could Be Facing Bankruptcy or Costly Litigation. When you looked at your franchisor’s Franchise Disclosure Document (FDD), did you spend much time looking at Items 3 and 4? Probably not. These early Items are frequently overlooked, but they can provide critical insights into a franchisor’s solvency and financial stability. If your franchisor files for bankruptcy or incurs a substantial judgment in litigation, this could have devastating consequences for the franchise system as a whole. Unlikely as this may be, it is not a risk to be ignored completely. 2. The Franchisor’s Principal Trademark Could be in Jeopardy. If you are like most franchisees, one of your primary considerations in choosing a franchise was the recognizability of the franchisor’s brand. In legal terms, a brand is known as a “trademark,” and franchisors can lose their trademark rights under a variety of different circumstances. Ideally, your franchisor should have its principal trademarks registered with the U.S. Patent and Trademark Office, and it should be actively monitoring and enforcing its trademark rights. If your franchisor’s trademarks lose their exclusivity, you could lose the right to use them as well. 3. Your Territorial […]

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If your franchise agreement is set to expire in 2020, you need to make an important decision: Is it time to let your franchise rights expire; or, do you want to renew? Dealing with the expiration of your franchise agreement involves a variety of different considerations, and there are several important facts you need to know. Here is an overview of some of the key factors you will need to keep in mind: 6 Considerations for Dealing with Franchise Expiration and Renewal 1. You Need to Provide Advance Notice if You Intend to Renew If you want to keep your franchise for another term, you will need to provide your franchisor with advance notice of your intent to renew. The amount of notice you need to provide will be determined by the specific terms of your franchise agreement. 2. You Will Also Need to Satisfy the Conditions for Renewal As a franchisee, your “right” to renew is not guaranteed. Your ability to secure a renewal term is subject to various conditions (which, again, are spelled out in your franchise agreement), and you will need to satisfy all of these conditions in order to keep your franchise beyond 2020. 3. You Might Need to Deal with Your Lease as Well If you have a lease for a retail or commercial location, then you will also need to see what your lease says about term and renewal. Does your lease expire concurrently with your franchise agreement? If so, what are the conditions […]

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We saw a lot of change in the franchise industry in 2019, and all indications are that this trend will continue through 2020. Recently, Score.org published an article highlighting four trends that have the potential to have a significant influence on franchisees – and the franchise industry as a whole – in the New Year. 4 Franchise Trends Poised to Shape the Industry in 2020 Trend #1: Demographic Shifts are Influencing the Market According to Score.org, three major demographic shifts are each having their own unique impact on the franchise industry. First, the organization notes, consumer demand is now dominated by the Millennial generation. Second, Baby Boomers are buying franchises in record numbers by drawing from their long-term savings. Third, seniors are “aging out of the workforce,” and this is creating more alignment between franchise ownership and franchise patronage. Together, these three factors mean that sectors such as health and wellness may be poised to dominate the industry long-term. Trend #2: Multi-Unit Franchise Ownership is Going Mainstream “[M]ore than half of all franchise units in the U.S. are owned and run by multi-unit operators.” This has not always been the case, and Score.org attributes this shift to the growing desire among prospective franchisees to, “establish a small business empire.” While being a multi-unit owner isn’t for everyone (taking financial standing and various other considerations into account), as more prospective franchisees continue to express interest, franchisors may begin doing more to make multi-unit opportunities more accessible to all. Trend #3: Homeowners […]

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Whether you have made it your New Year’s resolution to buy a franchise or you have been planning to leave your job for years and are finally ready to take the plunge, there are some important facts you need to know if you are planning to buy a franchise in 2020. Here are five tips from franchise attorney Jeffrey Goldstein: Tip #1: Do Your Research There are more franchise opportunities available today than at any prior point in history. While several concepts that were “emerging” just a decade ago are now firmly entrenched among the industry’s leaders, there are many untested concepts out there, and franchisors’ reputations can shift dramatically in a very short period of time. So, before you settle on one particular franchise, make sure you do your research. Tip #2: Choose a Franchise Concept with Staying Power In the same vein, when buying a franchise, it is important to choose a concept with staying power. What we mean by this is that you need to try to avoid buying a fad franchise. You will be investing a lot of time and money in your new business, so you need to be reasonably confident that there will be adequate consumer demand throughout the duration of your franchise agreement. Tip #3: Focus on Technology In recent years, technology has changed the way that many franchise systems operate, and Forbes.com recently published an article on how technology will transform life as a franchisee in 2020. When you are buying a […]

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Technology has transformed the way franchisors and franchisees do business. From the introduction of electronic point-of-sale (POS) systems to the advent of social media, all types of technological innovations have made their way into the franchise realm. Recently, the rate of innovation has sped up significantly, and this means that franchisees are being asked (or forced) to adopt new technologies with increasing frequency. A recent article on Forbes.com examines six technological trends that are likely to have a big impact on franchising in 2020. While we have seen these innovations make their way into many franchise systems already, we expect even more franchisors to require franchisees to adopt these technologies in 2020 and beyond: 1. Artificial Intelligence (AI) While artificial intelligence used to be fodder for sci-fi movies, today it is an important tool for many different types of businesses. Franchisors and franchisees are utilizing AI for everything from managing inventory to anticipating market demand, and many are finding that it promotes efficiency while also providing a leg up on the competition. 2. Digital Payments Today, mobile franchisees can accept credit card payments on the go, and customers can pay at the register with a swipe of their phone. Making it easier and faster for customers to pay means that more customers are likely to buy and that the checkout process is quicker than it used to be. This is a win-win solution that we expect will become much more commonplace in 2020. 3. Delivery Apps Third-party delivery apps like […]

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Franchise Direct is a resource website that publishes an annual list of Top 100 Global Franchises. Like other ranking platforms, Franchise Direct relies on its own methodology in deciding which franchises make the list and in what order, and Franchise Direct bases its rankings on factors including: System size System revenue System age Stability and growth Market expansion Adherence to franchisee support and training best practices Environmental policy Social responsibility According to Franchise Direct, its analysis of these factors is intended, “to offer an objective look at some of the world’s top franchise operations.” What Can 10 Years of Rankings Tell Us about the Franchise Industry? Since we’re at the end of the decade (at least by some people’s calculation), Franchise Direct took the opportunity to look back at its Top 100 Global Franchises lists from the past 10 years. Here are some of the trends they identified: 180 franchises broke into the top 100. Over the past 10 years, 180 different franchise systems have been ranked among the top 100 by Franchise Direct. This suggests a large amount of stability among the top echelons, but also clearly indicates that many franchises rise and fall (and come and go) over time. Franchise Direct also reports that, “37 franchises went 10 for 10, making our Top 100 ranking every year of the past decade.” Nearly 40 percent of the top 100 were food franchises. According to Franchise Direct, 38 percent of all franchises ranked in the top 100 over the past […]

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The Franchise Times (FT) recently published its “Fast & Serious” list for 2019, which it dubs as its ranking of the “smartest-growing franchises.” According to FT: “Franchise Times created a formula to identify fast-growing franchise systems that also have staying power. . . . [The formula includes] percentage sales growth, percentage unit growth, dollar sales growth and numerical unit growth over the past three years. The database for the project is the Franchise Times Top 200+, our annual ranking published in October of the largest franchise systems by revenue. Haskin identified the companies that submitted information for all three years for that project, then selected for analysis those with systemwide sales above $40 million.” The list includes franchises in many of the sectors you would expect – like fitness and fast-casual dining – as well as some that you might not – like eyelash extensions and pest control. Here is the complete list from 1-40 (more information about each franchise is available through the link above): Club Pilates Orangetheory Fitness Burn Boot Camp Fyzical Therapy & Balance Centers Amazing Lash Studio Restoration 1 Blaze Pizza 9Round uBreakiFix Goldfish Swim School Freshii Walk-On’s Bistreaux & Bar Circle K The Halal Guys Nothing Bundt Cakes Mosquito Joe Planet Fitness Chicken Salad Chick HomeVestors Hand & Stone Tropical Smoothie Café Nekter Juice Bar Anytime Fitness United Real Estate TeamLogic IT Freddy’s Frozen Custard & Steakburgers Jersey Mike’s Subs Workout Anytime Profile by Sanford Dogtopia 911 Restoration Sola Salon Studios Black Bear Diner The […]

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If you are thinking about selling your franchise, along with assessing your ability to satisfy the conditions for transfer in your franchise agreement, you will also need to determine the value of your business. There are a number of different methods for valuing a franchise – and ultimately your franchise will be worth what someone else is willing to pay – and making an informed decision before putting your franchise on the market will be important to making your exit from the franchise system. Factors for Valuing an Individual Franchised Outlet Valuing a franchise involves considerations that are both similar to and unique from valuing a fully-independent business. For example, while you need to determine the depreciated value of your company’s assets, in the context of a franchise, certain assets will be excluded from the business’s valuation. Most notably, while a fully-independent business will own trademarks and other intangible assets (such as copyrighted materials, customer lists and other proprietary information) that can significantly increase its valuation, in the franchise relationship, these assets belong to the franchisor. On the other hand, in some circumstances, the franchise relationship can add value itself, and your franchise agreement could be an asset that adds to your overall valuation. Some other factors involved in valuing a franchise for purposes of a potential transfer include: 1. Physical Assets Any physical assets your franchise owns will be relevant to determining its valuation. This includes everything from back office computers and furniture to point-of-sale (POS) systems and inventory. […]

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Buying a franchise is a complex investment. If you are like most prospective franchisees, you are preparing to invest a substantial portion of your life savings (and perhaps take out a small business loan), and you will rely on your franchise’s revenue to cover your business and personal expenses on a month-to-month basis. With these considerations in mind, when buying a franchise, there are some key mistakes you need to avoid. Here is a non-exhaustive list of what not to do if you are thinking about signing a franchise agreement: Mistake #1: Relying Solely on the Franchisor for Information When deciding whether to move forward with a franchise purchase, you need to make your decision based upon as much information as possible. While the franchisor’s marketing collateral and Franchise Disclosure Document (FDD) are fine places to start, you need to dig much, much deeper. A comprehensive due diligence analysis will involve talking to current and former franchisees, reviewing previous versions of the FDD, comparing competing franchise opportunities, and much more. Mistake #2: Skimming the Franchise Disclosure Document (FDD) When you receive a copy of the franchisor’s FDD, you need to read it. All of it. Even if there are sections you do not understand, reading the FDD carefully and taking notes will allow you to ask the questions necessary in order to make an informed decision. Mistake #3: Not Negotiating the Franchise Agreement No matter what anyone tells you, franchise agreements are negotiable. This is a good thing, because the […]

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Buying a franchise and starting an independent business from scratch are two very different propositions. While franchisors and many online “franchise guides” tout the benefits of franchise ownership, there are a number of downsides as well. Here is a list of eight ways – good and bad – that owning a franchise is different from starting an independent business: The Good: 1. A Recognizable Brand For most people, one of the primary motivators for buying a franchise is immediate access to a recognizable brand. It can take several years and many thousands of dollars to build a brand that is on par with what some franchisors can offer, and immediate brand recognition can allow you to hit the ground running. 2. A Tested Business System The second hallmark of a strong franchise is a tested business system. When you buy a franchise, not only are you buying brand recognition, but you are also buying the ability to take advantage of a business system that has proven successful in the past. 3. Training and Operational Support Access to training and support can be benefits of buying a franchise as well. If your franchise will be your first business venture, having access to these types of resources can add significant value to a franchise acquisition. 4. A Network of Like-Minded Franchisees As a franchisee, you will likely have access to other franchisees in the franchisor’s system. You can share ideas and gripes, get your questions answered, and benefit from other franchisees’ collective […]

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