You also usually get better deals on supplies because the franchise company can purchase goods and supplies in bulk for the entire chain, and then pass that savings on to you and the other franchise units. The often- instant recognition from customers is also a big plus. Customers are dealing with a "known" rather than an "unknown. For the customer, the advantages of a franchise include the comfort of knowing what you're getting. You know that the quality of the product or service at one location will be comparable to that of another location.
You know what they have and you already know what you like about it. The questions for you as a potential franchisee are: Are you looking for something that is uniquely yours? Or do you simply want to run the show, regardless if it's by someone else's rules? Before you answer those questions, let's go into a little more detail about how the franchise actually works.
There are two groups involved in a franchise, the franchisor the person or company leasing the rights to the business name and system and the franchisee the person who purchases it. The right to the franchise is sold by the franchisor to the franchisee for an initial sum of money, often called the up-front entry fee, or franchise fee. This money will be paid once the contract has been signed.
The contract franchise agreement details the responsibilities of both the franchisor and the franchisee, and is usually for a specific length of time typically several years. Once the contract expires, it must be renewed. State laws often have an impact on the options for this renewal. This initial franchise fee doesn't include anything except the rights to use the name and system, and sometimes training, procedures, manuals, and other assistance like site selection.
It doesn't include any of the necessary inventory, fixtures, furniture or real estate. In addition to the franchise fee, the franchisee must pay the franchisor royalty fees , or other on-going payments. These payments are usually taken as a percentage of sales, but can also be set up as a fixed amount or on a sliding scale.
The terms of these fees will be spelled out in the franchise agreement. These payments are for the on-going services and support that the franchisor provides. Franchisors may also sell supplies directly to their franchisees. Advertising funds are also paid periodically. These funds are usually put into a general account and used for national and regional promotion for the entire chain.
The success of most franchises is based on the operating systems, methods, and products produced. For this reason, franchisors must protect their proprietary information and trade marks.
In order to do this, they establish restrictive covenants for their franchisees. These covenants govern the things a franchisee can do. For example, one restrictive covenant may state that the franchisee cannot operate another similar business that would compete with the franchised business during the term of the franchise agreement.
These are called in-term non-competition covenants. There may also be post-term non-competition covenants that prohibit the franchisee from operating a similar business even after the terms of the franchise have expired. Each state, however, has its own laws regarding the enforcement of non-competition covenants. Often, in-term covenants can be more readily enforced than post-term covenants. A business's trade secrets are often vital to its success. It is an understood rule that franchisees will keep trade secrets strictly confidential.
This not only protects the franchise, but it also protects the franchisee's individual investment. Most states have adopted some version of the Uniform Trade Secrets Act , which helps identify the parts of the franchise system that may constitute a trade secret. To see a list of those states that have adopted it, U. Trade Secret Protection by State. Proprietary systems and franchise information that doesn't fall under the category of a "trade secret" should be treated as such regardless, because it may still be protected under the restrictive covenants of the franchise agreement.
How do you select the business franchise that fits your needs, skills and desires best, while also making sure you're joining a top-notch organization? There are some steps to take to begin the weeding-out process.
So put on your inspector's hat and begin formulating a game plan. First of all, think about the work environment you are interested in, and the requirements that running businesses in various industries will have. For example, do you like working late and long hours, hiring and managing employees, and dealing with the public? If so, you could consider the food service industry.
Think long and hard about what "fits" your lifestyle. Involve your family and any friends or associates you may want to pull into the business. Write down your objectives. Sometimes, just the act of writing things down helps you more clearly identify what you really want. Once you have identified the general category of business you want enter into, visit some of the franchising Web sites we have listed at the end of this article.
On most of these sites, you can search for franchises based on investment levels, type of business, and sometimes geographic region. Some even give you estimated breakdowns of what your total investments will be, as well as the ongoing royalty and advertising payments.
You can also use a franchising consultant to help narrow down your choices. When you get a list put together, begin contacting the franchisors for additional information. One thing to keep in mind throughout this process is that while you're shopping for a franchise, those franchises are also out there shopping for franchisees.
You'll be interrogated as much as you interrogate them. You both have to agree that it's a good match in order to proceed. Once you contact a franchisor for more information, these are the steps that will typically follow:. The franchisor will send you brochures and other materials, and most likely request that you complete a questionnaire.
You will proceed based on the outcome of that exchange of information. The Federal Trade Commission FTC requires this document be provided to disclose detailed information about the franchisor at least 10 days prior to any franchise purchase. That information includes:. Visit as many of the franchisor's existing franchisees as you can.
Meet directly with the owner of each establishment, and pay close attention to opinions of the franchisor. For Tanyel Harrison Bennett, the conversations she had with her father when she was caregiving for him in his final days sparked a new beginning.
The brothers ran a successful chain of restaurants selling hamburgers, fries and shakes. The rest is fast-food history. The process starts with an online application. The answers to those questions for this part of the process can be brief.
Bennett says it took her a few days to gather the documentation to complete the second part of the application process. The next stage for applicants who advance is the interview. After successfully completing the training program, applicants finally become eligible to purchase a restaurant. The important thing to note about this step is that in many cases, the earliest opportunities to buy a restaurant may not be close to where the applicant lives. For Bennett, who purchased her two restaurants in the middle of the COVID pandemic , the business of being an owner has been labor intensive but rewarding.
So I am working very, very hard. Kenneth Terrell covers employment, age discrimination, work and jobs, careers and the federal government for AARP. He previously worked for the Education Writers Association and U. You are leaving AARP. Please rate this article. Subscribe to our newsletter! E-Mail Subscribe. Still no comment for this article. Be the first to publish a comment! Post a comment Last Name. First Name. Publish email: Yes No. Comment Characters remaining:
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