Find a: Great Franchise Now Get: Free Franchise Advice Bryan Burbank is an expert in the field of Business and Franchises Article Source: http://EzineArticles.com/?expert=Bryan_Burbank

Bookmark & Share

If you want to own your own business, you have several options. First, you could start your business from scratch. Second, you could buy an existing business. Finally, you could buy a small business franchise.

What is a Franchise?

When you buy a franchise, you buy one or more of the following:

• A trademark
• A brand name
• A service or product

The simplest form of franchising is buying a product name or trade name. More complex franchises, business format franchising, can include services such as marketing plans, training and assistance in finding a location.

Franchise Basics

Before buying a franchise you will need to:

• Determine whether you have the right set of skills and background for a given type of franchise
• Compare different types of franchises within an industry
• Determine how much you can invest

As you go through the research process and get closer to buying a franchise, one of the key documents that you will have to examine is the UFOC, or the Uniform Franchise Offering Circular. Federal and state laws require that a franchisor send you a copy of the UFOC before signing a contract or before any money exchanges hands. The UFOC will contain business and background information regarding the franchise, audited sets of financial statements and copies of forms and contracts that you will have to sign if you decide to buy. This is an essential document that will point out the strengths and weaknesses of the franchise.

Make sure that you have an attorney to assist you in the buying process. An attorney, particularly one that specializes in franchise law, can help you wade through the legalese in any agreements that you will have to sign. Of particular interest are:

• Sales quotas that may be required
• Tax implications of purchasing the franchise, both short term and long term
• When the franchiser has the right to pull the franchise from you
• If you can transfer ownership of the franchise to another party
• Any non-compete requirements if you start another business

Other questions to ask include:

• If the company is planning on expanding in your state, what are the expansion plans?
• Have any franchises reverted back to the franchisor? If so, what were the reasons behind this?
• Are there or have there been any lawsuits against the franchise?

Do not forget to interview other franchise owners to get their input. If you do this, you will have information about how well the franchisor responds to problems and get a clue as to how realistic the franchisor is about franchisees’ businesses.

Buy a Small Business Franchise: Advantages and Disadvantages

Advantages of owning a franchise can include:

• Being associated with a proven brand, product or service
• Having a protected territory
• Not having to search for suppliers

Disadvantages in owning a franchise can include:

• Little or no leeway in changing your business
• Ongoing fees or royalties to the franchisor
• Depending on other franchisees to maintain the franchise’s reputation

Bookmark & Share



Bookmark & Share

Franchisers charge a substantive fee to franchise owners to cover the initial startup costs and to maintain grown within the company. Depending on the company and the type of franchise you own, the franchise fees can vary from business to business. While a franchise payment is important in allowing the company to grow and prosper, the main source of income for the company should always be based on the amount of royalties it makes from the sale of its products or services.

A franchise fee that is set too high may make potential franchisees think twice about becoming professionally involved with the company. It is important to determine an appropriate franchise expense and using your franchise consultant and legal team to negotiate a fee that works for both parties. Take into account the specific service or product the franchise will provide, along with the potential return of investment and profitability of the business.

Sometimes, in a market that doesn’t have a history of a certain type of product or service, these fees will have to be estimated because there is no statistical data on the ROI of the business. Your financial performance and the financial performance of other franchisees like you determine the fee that will be assessed in the future to other new franchise owners. If you’re entering a business environment with a product in a somewhat untested market, you may have a lower franchise fee. However, if you’re opening a franchise in an environment that has had proven success and profitability, the franchise fee will be higher.

You also must consider the startup costs and expenses the franchisor has to invest. If you are opening a franchise in an already established industry, for example – a fast food business, the difference in franchise fees may be more obvious. In this type of industry, the franchisor is responsible for the costs and expenses associated with the marketing and advertising. They will include these factors in the franchise fee, as well as the costs for training materials and other startup expenses such as the assistance provided during the grand opening phase.

Some franchise companies look to make a profit by charging a franchise cost that is too high. Others look to charge a fee that will even out, while some even charge a franchise fee that is low and will cost them money initially. The hope is that the royalties and profits made will far surpass any losses they endure from a smaller franchise fee. Most franchisers will try to at least make a 25% profit on the fee. Of course, they are providing the marketing materials and advertising development. If all goes successfully, you’ll recoup the money spent on the franchise fee and begin to operate a profitable business.

Bookmark & Share