In late August, the state senate passed the heavily amended bill. But on Sept. Meanwhile, he says, the problems the bill addresses are getting worse. The only way to protect their equity is to renew at whatever terms the franchisor says. Michael Gray, a principal attorney at Gray Plant Mooty in Minneapolis who represents many large franchisors, disagrees.
In fact, the courts in California are very protectionist and pretty good at protecting franchisees. This bill would have just created uncertainty. The big problem, he argues, is inaccurate notions about the nature of the franchisor-franchisee relationship. Franchisees never should have the expectation that it will go longer than they signed on for.
While SB is shelved for now, another political storm is roiling in the franchise industry. On July 29, Richard F.
Franchising Business: Buying Guide
Griffin Jr. Critics fear that if this ruling is implemented widely, it will erode the independence of franchisees, as franchisors exercise more control. Some are concerned that it will cause systems to abandon franchising altogether. By proposing such seismic changes, this supposedly independent body is caving to the [SEIU] and is undermining the franchise business model. It must be rejected before it does irreparable harm and before it does damage to the economy. The IFA also announced plans to file a request under the Freedom of Information Act for any advice memoranda to help elucidate his ruling.
At press time, the NLRB had not clarified its position or issued any other statements on the opinion. As late as , most franchisees were truly independent contractors. Increasing brand standards created a lot more uniformity and consistency in franchising, which was a great thing. He points to a case in the California Supreme Court, Patterson v. Gray believes any similar suits will meet the same fate. When Griffin sent this memo out, alarm bells went off unnecessarily. The sky is not falling.
Another major issue that has been brewing in the past year is the minimum wage, galvanized by strikes by fast-food workers. Gray says the issue is simply another flank in the same battle that is animating the NLRB ruling. The customer service experience at the counter is so important, franchisees want the best people they can get. The ones making minimum wage are cleaning tables or in the back. They should be worried about protecting their equity. But the law treats franchisees as a single unit, with Subway, Burger King and dozens of other franchisee-owned businesses subject to the three-year phase-in—a situation the IFA is taking to court.
These cases seem to be dividing the franchise world along political lines, but Purvin has hopes that the franchise community will sit down and work through its issues instead of letting government intervene. I would much prefer this happen at the conference table, not the legislature.
Until franchisors are willing to have that dialogue, though, there need to be rules, and the parties involved need to act in good faith. Franchise Industry Not Without Hurdles in All Rights Reserved. Fortune may receive compensation for some links to products and services on this website. Assess the franchise opportunity carefully and check whether the company offering the franchise is a member of the British Franchise Association, or your own country's equivalent. Ask questions and look for evidence of their claims. Ask the franchisor for a full list of past and present franchisees, not just the two most successful ones.
Take advantage of other sources of information and advice. Ask your bank - many have franchising specialists. And make the most of other advisers such as Business Link, your solicitor or your accountant. This doesn't need to be War and Peace - a basic outline is enough to tell you and your bank manager whether your preferred business franchise is a sound proposition or not. Just as you would for any other business, you need to draw up a business plan when buying a franchise. This will help you assess the prospects for the business and identify potential weaknesses.
A business plan is also essential for raising finance. When calculating the likely cost of a franchise, you need to take both initial and ongoing fees into account. You must also take into account what 'working capital' you need - this is the money you and the business need in order to run and survive before profits and cashflow are generated. This should be a relatively low administration fee. Good franchisors make most of their profits from continuing royalties. Alternatively or additionally you may pay a management fee of some kind. It is common also for franchisors to derive revenues from the franchisees through the supply of stock, marketing materials, and training etc.
Check what they charge.
They may mark up the prices - or they may be able to offer them to you at a discount because of their purchasing power. You also have to pay the usual business costs - for example, rental on premises, utilities or the costs of any employees you take on. Again, check whether anything you pay for through the franchisor has a realistic cost. Check too whether the agreement includes additional charges.
There are a number of key things you should and shouldn't do when planning to purchase a franchise. The franchise agreement is crucial. Get a specimen contract for them to review. Here are definitions of contracts and agreements legal terms which will help you to understand yourself the basic contract meanings. Business Link provide the following new franchise case study, which gives a real first-hand perspective of the issues:. Entrepreneur and trained optometrist Stephen Halpin always intended to run his own business.
In his chosen market, the high street optical services sector, a franchise seemed like a good way to get a head start. After considering the options, Stephen bought one of the first Boots Opticians franchises in Northwich, Cheshire. Here is the story, lessons learned, and tips from the experience:. A franchise made sense, because it reduces some - not all - of the risks, offers a familiar brand name to build on and provides support with marketing and other aspects. There are several franchisors out there and I considered them all. I decided to go for a Boots Opticians franchise.
Franchising Business: Buying Guide
Also, because I was applying for one of the first Boots Opticians franchises, there was more scope to get involved in developing the operational systems. This was important to me I found that longer-established franchisors had a less flexible attitude. The store I wanted to take on had been trading as a Boots Opticians for several years so it had financial records to assess. Other factors I considered were the store location, local competitors and current operational practices. Without a clear idea of how much the business could make and how much cash I needed, it would have been impossible to tell if the franchise agreement on offer was worthwhile.
This was a key part of the process of being accepted for the franchise. The presentation and plan also gave me the information I needed to negotiate a contract. Following the presentation we had a number of conversations about the principles of any agreement.
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I got advice from specialist franchise solicitors before signing. One of my key objectives was to ensure that the agreement benefited both parties, that I made money and so did Boots. I wanted an incentive to grow the business, rather than just keep it ticking over, and Boots recognised that.
One very useful point we negotiated was a deferment of payment on the upfront licence fee, which is one of the biggest franchise costs. I paid a portion on signing, the rest a few months later. It meant I had to borrow less in the early days.
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Even so, I wish I'd had more advice, especially with regard to employment law and the impact of VAT on the business. It's a piece of legislation that's concerned with the transfer of staff from one employer to another. As I was taking on existing staff with the franchise, a better understanding of TUPE would have been helpful during negotiations. This issue is only relevant to franchisees who are buying an existing business, with obligations to existing staff. Download an explanation of franchise types from the franchiseadvice.
The provision of this material by Business Link now Gov. It is subject to Crown copyright. Business and Lifestyle. Other Trivia. Remember username. Log in using your account on. Back to course 0. Back to Business Startup. Next Activity. Follow Us. Share this page. Franchising Business: Buying Guide Guide to buying a franchise - small business franchises or large international business franchises - information on selecting opportunities, franchises for sale, and franchising tips.
Printer-friendly version. Table of contents 1. Guide to buying a franchise - small business franchises or large international business franchises - information on selecting opportunities, franchises for sale, and franchising tips 1. Tips for buying a franchise 1. Other types of sales 1. A word about multi-level marketing 1. Advantages and disadvantages of franchising 1. Advantages 1. Disadvantages 1. The costs of a franchise 1. Initial costs 1. Continuing costs 1. How to select and buy a franchise 1. Tips on franchise agreements and contracts 1.
Areas covered by a typical agreement 1. Buying and starting a franchise: a case study 1. Lessons learned 1. Franchise tips summary 1. Tips for buying a franchise Choose a franchise business that you'll enjoy Buying a franchise that you will enjoy is the most important factor of all. Research the best franchises There are thousands of different business franchises, and there will be more than one and perhaps many in your chosen business area. Trust your instincts When you buy a business franchise of any sort you are entering into a business partnership, in which your relationship with the franchisor or 'principle' , and their people, will be absolutely crucial to your success.
Look for a good business profit model Successful businesses - not just franchises - are always based on a sound and healthy business and profit model. Look for high integrity propositions and franchisors High integrity is essential for two crucial reasons: You will keep your peace of mind, and sleep at night. The world is full of miserable millionaires - people who have exploited others to make their money - don't be seduced by this false dream.
Always behaving and deciding with high integrity will keep you safe, well, and probably make you wealthier too. You will delight your customers and good word will spread, which is vital for local service businesses, which nearly all franchise businesses are. Local businesses live or die by their reputations. Behaving with high integrity will automatically ensure that your reputation shines and grows. Many well established successful franchisees never need to advertise or look for their next customers - their customers find them.
Understand the financials You don't need to be Gordon Gekko, but you do need to understand the essential things: What is the level of investment and what do you get for it - is it good value? Understand the meaning of contracts The business contracts that are signed by the franchisees and franchisors represent the agreement and terms of trading between the two parties. Buying a franchise The following information about selecting and buying a franchise business is provided by Business Link, which is gratefully acknowledged. Other types of sales Different types of sales relationships are also sometimes referred to as franchises.
You have more freedom over how you run the business. There are usually no extra restrictions on how you run your business. A word about multi-level marketing Some businesses offer 'franchises' that are really multi-level marketing. Advantages and disadvantages of franchising Buying a franchise can be a quick way to set up your own business without starting from scratch. You can check how successful other franchises are before committing yourself.
You benefit from any advertising or promotion by the owner of the franchise - the "franchisor". The franchisor won't sell any other franchises in the same region, though there will be competition from other businesses. Banks are sometimes more likely to lend money to a franchise with a good reputation.
As well as the initial costs of buying the franchise, you pay continuing royalties and you may have to agree to buy products from the franchisor. You might not be able to make changes to suit your local market. A franchise gives you a business blueprint - but it won't give you customers. Do you have the necessary stamina? Think how you react to pressure. If so, would you be happy with the restrictions imposed by a franchise arrangement? You might be more comfortable with a franchise than starting a new business from scratch. Or would you prefer a business that involves physical labour?
Are you happy working on your own? Or would you be good at recruiting, training and managing employees? Do you like dealing with members of the public? Or would you prefer a franchise where you sell to business customers? Are you weak in particular business skills such as finance?
A Consumer’s Guide to Buying a Franchise | Federal Trade Commission
Can you find a franchise that offers the support you need in those areas? Research possible franchises You can find out about possible franchise opportunities from a range of sources. As well as offering guidance and seminars on franchising, it provides: details of members who may be offering new franchises details of members who may be offering existing franchises for resale Franchises are advertised and written about in various national newspapers and in trade publications such as Dalton's Weekly and Franchise World.
Write an outline business plan This doesn't need to be War and Peace - a basic outline is enough to tell you and your bank manager whether your preferred business franchise is a sound proposition or not. The costs of a franchise When calculating the likely cost of a franchise, you need to take both initial and ongoing fees into account.
How to select and buy a franchise There are a number of key things you should and shouldn't do when planning to purchase a franchise. Do Assess yourself to see what kind of franchise, if any, will suit you. Find out what franchises are available. Assess franchise opportunities carefully, ask questions and talk to other franchisees. Investigate the financial prospects for the business. If you'll need to raise bank finance, ask your bank if it will consider a loan for the type of franchise you're considering. Do your own market research into customers and competitors in your area.
Draw up a business plan. Check the franchise agreement and get professional advice. Don't Take up the first opportunity before investigating alternatives. Allow yourself to be hurried into making a decision. Pay any non-refundable deposit. Commit yourself before you're completely satisfied.
Assume a business will work in your area just because it works elsewhere. Rely on the forecasts provided by the company selling you the franchise. Sign any agreement without legal advice. Tips on franchise agreements and contracts The franchise agreement is crucial. Will you have the option to renew it, and on what terms? Do you have exclusive rights to sell within it? What royalties will you pay on sales? Will you pay a regular management fee? Will you have to pay other costs? How are the costs worked out? What continuing support will you get?