Franchise ownership has pluses and minuses

Franchise ownership has pluses and minuses

| Mar 31, 2021 | Firm News |

Many entrepreneurs decide to own a franchise because they believe that it is a pathway to success. But like other business decisions, franchising has advantages and disadvantages that must be considered in seeking and granting a franchise

Franchise defined

A franchise allows a person to buy into an existing and successful business that has a demonstrated history, successful training programs and logistical, supply and technical support. There were approximately 758,000 franchise establishments employing almost 7.88 million workers in this country in 2018.

Advantages

Franchises are usually established and successful concepts. Franchises generally have a greater chance of success than businesses that are independent start-ups.

Franchise owners receive business assistance. Many of these businesses are turnkey operations where new buyers receive all the equipment, supplies and instruction to immediately begin operations. Sometimes, training is provided to help with management and marketing.

Franchises may also receive management and marketing assistance. Parent companies often undertake marketing campaigns that may help individual franchises. Franchises can have wide-spread brand recognition.

Franchises may be very profitable. Some national franchises can be more costly but generate high returns on investments.

Restrictions

The most significant restriction is that franchisees must follow the franchisor’s rules and guidelines. Control is imposed so that the franchise’s product or service is uniform, and each location is recognizable to customers and clients. Agreements may impose terms on location, hours of operation, pricing, signage, layout, furniture, use of products supplied by the franchisor and resale.

Franchisors usually receive the original franchise fee and a percentage of royalties from monthly business revenue. Franchisors may also charge other fees for advertising and other services.

Buying into a well-known franchise is also expensive. Franchisees may need to pay a lot of money up front or receive financing.

Some franchises only provide start-up support. Ongoing support may be unavailable.

Finally, there is no guarantee that a franchise will be successful. Even if franchise operations perform well, there is no guarantee that it will provide the owner’s profitability expectations.

Franchise agreement

If a candidate’s application and interview is successful, there will be a contract offer that lays out both parties’ obligations. Some terms may be negotiated. Any assurances or promises should be included in the contract.

Attorneys can assist franchisors with negotiating and drafting these agreements. They can also represent their interests in claims brought against them.