Franchise Articles

According to a recent article on Forbes.com, approximately 300 new franchise concepts pop up every year. Of these, nearly a third (30.6 percent) sell zero or one franchise within their first four years of franchising, and less than half (42.2 percent) expand to 26 or more outlets five years from the issuance of their first Franchise Disclosure Document (FDD). So, is buying into a startup franchise too risky? Or, if the concept proves successful, can it provide the sweet spot that many prospective franchisees are looking for – a recognized brand and reliable system support without the intra-brand competition and impersonality of a behemoth franchise system? As with most things, it depends. The statistics certainly seem to bear this out, and they also shed light on just how much franchisees’ success can be dependent upon their franchisor’s efforts to build the system (despite the disclaimers in their franchise agreement that say otherwise). In order for the brand to grow, you need the franchisor to sell franchises. If you are the first franchisee to buy, you could also be the last; or, you could be an early adopter who gets to benefit from your ambition. Legal Considerations for Buying into a Startup Franchise Regardless of the franchisor’s experience, buying a franchise is a risky investment that requires thorough due diligence and careful planning and preparation. From a legal perspective, here are some of the key factors to consider: The Franchisor’s Expansion Plans – If you will be one of the first […]

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Forbes.com recently published an article titled, “Laid Off? Why Now Could Be the Best Time to Franchise.” The article discusses some of the potential benefits of franchise ownership, and it provides an introduction to some of the financial considerations involved in choosing between various franchise opportunities. Losing a job is an event that causes many people to re-examine their priorities; and, to be sure, buying a franchise is one option that is available. However, before committing to any particular franchise opportunity (or franchise ownership in general), it is important to critically assess your goals, skills and financial circumstances in light of the realities involved. 1. Buying a Franchise is a Long-Term Commitment Buying a franchise typically means committing to a contractual relationship for two, three, five or ten years. Even if you find a work-from-home franchise that allows you to open for business relatively quickly, buying a franchise is not a short-term solution to being out of work. The decision to buy a franchise should be made based upon a sincere desire to run your own business within the confines of the franchise structure and should not be triggered by any one single event. 2. Buying a Franchise Requires Access to Capital When you buy a franchise, you need to pay the franchisor’s initial franchise fee, you need to cover the expenses involved in establishing your business (which can range from tens of thousands to millions of dollars), and you need to have a capital reserve to fund your business […]

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The International Franchise Association (IFA), the “world’s oldest and largest organization representing franchising worldwide,” recently announced a partnership with the National LGBT Chamber of Commerce (NGLCC). According to the IFA, the goal of the partnership is, “to further the organizations’ shared missions of creating business opportunities for all Americans and cultivating diversity and inclusion within the franchising industry . . . [and the] partnership is NGLCC’s first programmatic partnership with a trade association.” As a result of the partnership, the IFA will also be recognized as a Trade Association Sponsor by the National Business Inclusion Consortium (NBIC), which is a coalition of diverse business organizations including the NGLCC, the United States Black Chambers, Inc., Disability:IN (formerly USBLN), the United States Hispanic Chamber of Commerce, the United States Pan Asian American Chamber of Commerce, WEConnect International, and the Women’s Business Enterprise National Council. In a statement, NGLCC President Justin Nelson stated that the partnership will “bring [] LGBT franchise owners one step closer to having their voices heard and securing the LGBT business community an equitable seat at the table.” About the International Franchise Association (IFA) The IFA is perhaps the most well-known membership organization in the franchising industry. It works to promote the interests of the franchise industry through education, advocacy and government relations, and its members include franchisors, franchisees and suppliers. More information can be found at franchise.org. About the National LGBT Chamber of Commerce (NGLCC) The NGLCC is an advocacy organization that promotes diversity and inclusion for lesbian, […]

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If you love working with children and want to be your own boss, buying a child-related franchise may seem like the perfect fit. After all, who wouldn’t want to hit the ground running with a recognized brand and a business format that has proven effective at tens – if not hundreds – of locations around the country? While buying a franchise certainly can offer these benefits, not all franchise opportunities are created equal, and owning a franchise presents certain unique challenges as well. Providing child-related services also presents some unique risks; and, as a franchisee, you can expect to bear full responsibility if something goes wrong. If you are thinking about buying a child-related franchise, here are some of the key legal considerations you will want to keep in mind: 1. Liability (and Insurance) Working with children or providing services to children inherently presents liability risks that are not present for other types of businesses. Children cannot legally waive liability, so you will need to make sure their parents do so on their behalf. While your franchisor should provide a waiver form that contains the necessary language: (i) this language may or may not be enforceable in your state; and, (ii) it will be up to you to ensure that all parents sign before dropping their children off at the door. As a result, you should have the waiver form reviewed by an attorney, and you should be sure that you have a system in place for securing parent signatures […]

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Should Franchisees Foot the Bill for Franchise Remodeling and System Standards Modifications? By: Jeffrey M. Goldstein Franchise remodeling disputes have recently littered the franchise litigation landscape; but this is nothing new. The source of conflict in franchise remodeling disputes is not the ‘control’ issue (e.g., whether franchisees, not franchisors, should exercise final control over the type and amount of the franchisee’s business investments). Instead, the essence of the discord (at least from a static franchisee perspective) is whether a proposed or required remodeling is ‘worth it’ from a dollars and cents point of view. No more, no less. This same conflict that underlies remodeling disputes appears repeatedly in the franchise arena and also undergirds disputes associated with all significant franchise system modifications. Some of the more notable franchise system modifications that regularly give rise to disputes and litigation include menu item changes, new price ‘value programs’, price caps or maximum pricing, distribution channel supplementation, new computer system swaps and new marketing programs. If franchisees were able to trust the business decision-making acumen, motivations and goals of their franchisors, clashes regarding remodeling, like most other significant franchising disputes, would tend to be a ‘non-issues.’ And, of course, if franchisors had a track record of making globally rewarding investment decisions, such trust, as well as an efficient means for resolving breaches of that trust, would already exist. Most franchisees, to the extent they are good businessmen, merely attempt to ensure that each of their franchise-related investments – not just remodeling – reaps […]

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Your franchise agreement is about to expire. You have reviewed the renewal conditions in your franchise agreement, and you are pretty sure that you have done everything that is required in order to extend your franchise for another term. So, why does your franchisor seem to be the only thing standing in the way? There are a few potential reasons why your franchisor may not want to renew your franchise agreement. Understanding these reasons will help you make informed decisions about your next steps forward. 3 Reasons Why Franchisors Try to Prevent Renewal Although individual circumstances can vary, there are three primary reasons why a franchisor may not want to grant a renewal term to a particular franchisee. These reasons are: To Grant the Territory to a More-Favored Franchisee – Whether you have struggled to consistently meet your royalty and advertising fee obligations, an existing (and more profitable franchisee) has expressed interest in your franchise, or a new prospect is interested in your territory and appears to be more attractive franchise owner, your franchisor may be trying to remove you from the system in order to make room for a more-favored franchisee. To Take Over Your Territory for Itself – If your territory has been particularly profitable, your franchisor may want to take over the territory for itself. It may be that your franchisor wants to let your franchise agreement expire so that it can open a new company-owned location. To Offer an Area Development Agreement to a Larger Franchisee […]

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When you buy a franchise, you expect value for your investment. You paid an initial franchise fee and you will be paying royalties and advertising fund fees for years to come, and you – rightfully – expect something in return. However, as a franchisee, the onus to succeed is ultimately on you. No matter what the franchisor’s sales representatives told you during the pre-buying process, and no matter what your preconceived notions of the franchise relationship may be, as a franchisee, you are responsible for your own success. While you should be able to count on your franchisor for basic system support and to grow the general recognition of the franchised brand, it is up to you to turn a profit as a franchise owner. 5 Key Considerations for Early-Stage Franchisees So, what does this mean from a practical perspective? While every franchise opportunity is unique and industry, geographic and other factors will greatly influence the profitability of any individual franchised business, some steps early-stage franchisees can expect to have to take on their own include: 1. Marketing the Business Prior to Opening Grand opening expenditures are (or should be) included in the Franchise Disclosure Document’s (FDD) Item 7 estimated initial investment disclosures, but even the high-end estimate will often fall far short of what franchisees need to spend. Social media and local grassroots marketing efforts may be necessary as well, and franchisees will often benefit greatly from building awareness while they work toward opening for business. 2. Developing and […]

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Whether you are an experienced franchise owner or you are thinking about leaving your full-time job to enter the world of franchising, buying a franchise in 2019 presents some unique legal and practical considerations. Before you sign a franchise agreement, here are five important factors to keep in mind: Factors to Consider Before Buying a Franchise 1. Franchise Openings, Closings and Projections Franchisors are required to update their Franchise Disclosure Documents (FDDs) annually to reflect new openings and closings and to provide updated projections for the coming year. How old are the data in the FDD you received? While historical figures can still be useful, more-recent trends will give you a better idea of the current state of the franchise system. 2. Industry Factors Speaking of trends, while some franchise concepts have staying power, others seek to capitalize on trends in consumer behavior. The hottest franchise in 2018 may not have much viability in 2019, and the concepts that are popular now may not be popular in 2020. 3. Online Competition Consumers are increasingly turning to the Internet for retail purchases, and new delivery services are making it faster and easier to get everything from food to clothing (that you can try on and send back) at home. Additionally, as we recently discussed, Amazon is offering a $15 per hour entry-level wage, and this may make it harder for franchisees to attract quality employees as well. 4. Franchise Agreement Terms From arbitration to indemnification, franchisors are constantly finding new ways […]

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According to Franchise Direct, the pet franchise industry is growing rapidly. With pet owners spending around $70 billion annually, buying into a pet-related franchise may seem like a smart investment. But, whether you are interested in opening a brick-and-mortar “pet hotel” or retail outlet, operating a mobile pet grooming franchise, or walking dogs in your local neighborhood, there are some important legal factors to consider, and rushing into a franchise opportunity could prove to be a costly mistake. Important Legal Considerations for Purchasing a Pet-Related Franchise Before you buy a pet-related franchise, here are some important legal considerations to keep in mind: 1. Liability to Clients If you will be providing training, walking, grooming, or hospitality services, what are your responsibilities while you have custody of your clients’ pets? What if an animal gets sick while in your care; or, what if one client’s pet attacks another’s? While your franchisor should provide guidance for addressing these types of issues, do not expect your franchisor to assume liability if your franchise gets sued. This is true even if an animal gets sick or injured to your use of franchisor-mandated products or supplies. 2. Liability to Others In a similar vein, what happens if a client’s pet attacks someone else? For example, what if a client’s dog escapes off-leash or you lose control of a dog during a walk, and the dog bites a passer-by? Once again, your franchisor is not going to assume responsibility; so, should you? Are you prepared to […]

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A recent article on FranchiseDirect.com seeks to answer the question, “How much does it cost to buy a franchise?” by comparing the startup costs for two very different franchise opportunities: a work-from-home travel agency and a 300-plus room high-end hotel. In doing so, it lists the Item 7 estimated initial investment disclosures from two Franchise Disclosure Documents (FDDs), which range from a low-end total of $3,245 to a top-end investment in excess of $64 million. While these may be franchisors’ actual published figures, they represent two different extremes. Most franchisees will need to initially invest amount that is somewhere in the middle, often somewhere roughly in the range of $50,000 to $100,000. Where to Find Information on Franchise Startup Costs When looking for information on franchise startup costs, Item 7 of the FDD is one place to look, but it should not be prospective franchisees’ only source of information. There are a number of reasons why. Most notably: Franchisors’ numbers in Item 7 are “estimates,” and they may or may not be based upon data gathered from franchised and company-owned openings. Startup costs can vary by geographic location. Real estate leases, licenses, permits and other necessities can all vary greatly in cost from one area to the next. The list of itemized expenses in Item 7 may or may not be complete. Franchisors may overlook or omit certain expenditures, or you may need to incur costs that are not common amongst other franchisees. Even franchisors’ high-end estimates will often be […]

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