Franchisee
Frequently Asked Questions:
What is a franchise?
The best way to
answer this
is by example. Let's suppose you have a business that you have
developed. You have in place an identifiable trademark, and a method of
doing business that you have used and that works. You then want to sell
a copy of that business model as a prepackaged business for others to
use. You are a franchisor, the business you would sell would be a
franchise and the buyer would be the franchisee. In exchange for using
your business model, the franchisee would pay you an initial franchise
fee and royalties (typically a percentage of the franchisee's sales.)
If you would like to discuss your matter, please email our
firm or call us at 214.696.0021. (Be sure to read our disclaimer
before contacting us.)
What is the difference between a franchise and a
license?
You can sell a
copy of
your business in different ways. A franchise typically refers to a
business opportunity in what the franchisor retains strict control over
how the business is operated. This includes the use of the company's
trademark (called a license.) However, a company may wish to allow
another company to use its trademark, but not necessarily run its
business. This wouldn't be a franchise, just a mere right to use a
trademark.
If you would like to discuss your matter, please email our
firm or call us at 214.696.0021. (Be sure to read our disclaimer
before contacting us.)
What is a UFOC or FDD?
A
UFOC is a
Uniform Franchise Offering Circular (also known as an FDD). This is a federally mandated set
of disclosures that franchisors must give to potential franchisees.
This includes information about the franchisors, estimated costs, and
information about the franchise agreement. Note that many states
require additional disclosures on top of the UFOC.
If you would like to discuss your matter, please email our
firm or call us at 214.696.0021. (Be sure to read our disclaimer
before contacting us.)
What is a franchise agreement?
A
franchise
agreement is a lengthy contract between a company that has a specific
formula to operate a business (called the franchisor) and a company
wishing to copy
If you would like to discuss your matter, please email our
firm or call us at 214.696.0021. (Be sure to read our disclaimer
before contacting us.)
What is the difference between a UFOC and a
franchise agreement?
A
UFOC is a
Uniform Franchise Offering Circular. This is typically a short synopsis
of some key terms contained in the franchise agreement. The franchise
agreement itself governs the relationship between the parties.
If you would like to discuss your matter, please email our
firm or call us at 214.696.0021. (Be sure to read our disclaimer
before contacting us.)
What
is a distributorship?
A
distributorship
is a relationship in which a supplier allows a distributor to sell its
products for it. Many times, this includes the right to use the
manufacturer's trademarks.
If you would like to discuss your matter, please email our
firm or call us at 214.696.0021. (Be sure to read our disclaimer
before contacting us.)
What are the pros and
cons of
buying a franchise?
Pros: If the franchise is done properly, then quite
a bit of the initial work has been done for you. In many franchises,
the franchisor has developed a working business model, and has know-how
that will help get your new business moving. The franchisor knows what
works, and has a system in place to ensure that the business will
function. In some instances, you also have the benefit of a national ad
campaign, recognizable trademarks and access to group discounts.
Cons: Franchises are expensive, and have high start
up costs. Also, franchises typically remove control over the business
from you. You must also pay royalties on your sales, in addition to
franchise fees and other costs.
If you would like to discuss your matter, please email our
firm or call us at 214.696.0021. (Be sure to read our disclaimer
before contacting us.)
What
does it cost to buy a franchise?
There is no
standardize
cost to buy a franchise. There are common fees and types of fees,
however. Some of the more common costs are listed below:
Initial
franchise fee - This is typically a non-refundable initiation fee you
pay to the franchisor. This fee is simply for the privilege of doing
business with the franchisor. It also helps to eliminate those who
cannot otherwise afford to own or operate the franchise, and creates a
valuable incentive for purchases to stay with the franchise.
Royalty payments - This is typically a percentage of
the gross sales of the franchisee. In most cases, the franchisee is
expected to pay this fee regardless of whether or not the franchisee is
profitable.
Commercial lease - Although this is usually not a
fee paid to the franchisor, it can represent a significant initial
outlay and a substantial commitment. Most, if not all, commercial
leases require a personal guaranty, and at least a three year term. In
some markets, it may be possible to negotiate the terms with the
landlord, and to have the landlord finance part of the "build out" for
some of the project. (For information about commercial leases, please
visit DallasOfficeSpaceOnline.com
an affiliated site committed to assisting people with locating
commercial leases in north Texas.)
Initial inventory
- You will typically have to stock the initial location with a
specified amount of inventory to sell.
Advertising - The franchise agreement may require
you to spend either a specific sum or a percentage of your sales
towards advertising costs. This can include local advertising, or
Furniture,
fixtures and equipment - This typically includes specialized equipment,
such as electronic cash registers and computers, and may also include
specific types of decor and furnishings.
If you would like to
discuss your
matter, please email
our
firm or call us at 214.696.0021. (Be sure to read our disclaimer
before contacting us.)
What kind of control
would a
franchisor hold over my franchise?
The "look and feel" of the franchised
business is one of
the most prized and highly protected part of the franchise system.
Accordingly, many franchisors have tight controls on what the
franchisee can do with the franchise. On the upside, this ensures that
franchisees stick to a (hopefully) proven and reliable system for
profitability. On the downside, this may severely hamper the franchisee
from exercising business judgment. Some of the controls that a
franchisor may exert include the following:
Site selection. Many franchisors require that
franchisees have their work sites prepared. While this may be pursuant
to a franchisor's research on market viability, it may be different
from the wish of the franchisee.
Layout and decor. Franchisors may wish for their
franchisees to display a uniform image, or a uniform layout. This
allows customers to easily identify you as part of the franchised
business. However, this may drive up costs, as some franchisors may
have seasonal changes, or rotating displays.
Goods and services offered. Franchisors may restrict
the goods and services offered for sale or require that goods and
services be purchased only from approved suppliers. Many franchisors
want consistency with their franchise. As such, you may not be able to
stock the goods or sell the services that are not part of the
franchised system.
Business methods. Franchisors may require you to
operate in a particular manner, so that customers will identify your
operation with the franchise. The franchisor might require certain
hours of operation, use specific uniforms, and advertisements, or abide
by their accounting or methods.
Territory. Franchisors may limit your business to a
specific territory. These territories are typically mapped out, or may
be done by zip codes, geographical areas or other identifiable means.
These restrictions are to protect the other franchisees from
competition between franchises. However, if you are in an under
performing territory, it may make it difficult for you to move to a
more profitable locale. Further, these territorial protections are
typically protected with a non compete agreement.
If you would like to
discuss your matter, please email our
firm or call us at 214.696.0021. (Be sure to read our disclaimer
before contacting us.)
How long do franchise agreements usually last?
There is no
standard
length for a franchise agreement. Typically, the amount of the
franchise fee correlates to the length of the franchise. Typical time
periods are five, seven, ten and fifteen years. In most cases, neither
side can terminate the franchise agreement absent a mutual agreement, a
breach or some other pre-defined event.
If you would like
to discuss
your matter, please email
our
firm or call us at 214.696.0021. (Be sure to read our disclaimer
before contacting us.)
How do franchises end?
There are
several ways
a franchise can end. The franchise may end on its own terms (i.e. the
franchise was for a five year term and five years elapses). In most
franchise agreements, the franchisee may elect to renew the franchise
for an additional time period by paying an additional fee to the
franchisor at the end of the term. Franchises may also be terminated by
agreement of both the franchisor and franchisee. In some agreements,
the franchisor has the option to purchase the franchise from
franchisee. Finally, franchises may be terminated if one or both
parties breach the franchise agreement. This often leads to expensive
litigation on both sides.
If you would like
to discuss
your matter, please email
our
firm or call us at 214.696.0021. (Be sure to read our disclaimer
before contacting us.)
Franchisor
Frequently Asked Questions:
Why would l want to franchise my business?
A franchise
is a useful
tool to grow a business where the owners have a profitable business
model that can be easily replicated but you do not have the time,
energy or capital to open new locations. The franchise model allows
business owners to grow the business and the brand with less capital
compared to opening individual locations. Additionally, franchises, if
structured properly, should attract motivated individuals who will have
substantial time and money invested into the franchise (and hopefully
try to make the franchise profitable.)
If you would like to discuss your matter, please email our
firm or call us at 214.696.0021. (Be sure to read our disclaimer
before contacting us.)
How do I know if my business can be
franchised?
That
depends on the kind of business you have. Does your business rely
solely on your know-how and expertise? Or can you make a model of your
business that can run without your constant supervision? If your
business model lends itself to being easily being cloned, such that you
can train individuals how to run the business with minimal supervision,
then the business might be one that can be franchised. In order to
attract franchisees, the business should either be established, or have
a unique concept or product that will give it a competitive advantage.
If
you would
like to discuss your matter, please email our
firm or call us at 214.696.0021. (Be sure to read our disclaimer
before contacting us.)
How do I franchise my business?
The first step is to map out how you are
going to
franchise the business. You need to be concerned about the produces you
sell, how you sell them, and the places you will be selling them. You
then have to address logistics: how will the products be distributed
and sold? How will you sell the franchised system to franchisee? You
will also need detailed financial statements, and other materials about
the business for your offering circular. Many of these issues should be
identified prior to drafting the franchisee agreement. Also, you will
need to comply with various state and federal disclosure rules.
If you would like to discuss your matter,
please email
our
firm or call us at 214.696.0021. (Be sure to read our disclaimer
before contacting us.)
If I prepare a UFOC or an FDD, will that allow me to
offer franchises in all fifty states?
No.
Many states
require specific disclosures in addition to the UFOC.
If you would like to discuss your matter, please email our
firm or call us at 214.696.0021. (Be sure to read our disclaimer
before contacting us.)
- Cases may be
worked on jointly or referred. Even if you do not see
your specific issue listed here, please feel free to call our law firm.
One of our attorneys may still be able to help, or send you to a lawyer
referral service. For more information call us at 214.696.0021 or email . (Be
sure to read our disclaimer
first.) |
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