So, you’ve recently retired from a successful career and want to stay active and engaged in a business. A perfect option to explore could be franchising – acquiring a franchise business and developing it under a well-known brand with an established system. Franchising also offers the business owner several benefits such as buying existing relationships with customers and suppliers as well as a successful operating system, reducing the learning curve.
When pursuing a new business venture, it’s crucial to conduct thorough research; and with the International Franchise Professionals Group (IFPG), you can rest assured that you’ll get the best counsel regarding franchising. To begin, here are the most frequently asked questions when a franchisee starts the process of investing in a business.
What is the difference between franchising and licensing?
Franchising and licensing may sound similar but requires different investments and legal implications. In the case of franchising, the franchisee pays a one-time fee for the right to use the franchisor’s trademarked business system and any proprietary products and services. The franchisee also pays a percentage of the business’s profits to the franchisor or may be responsible for future royalties. On the other hand, in the case of licensing, the licensor permits the licensee to use a product, invention or process for a specified period of time for a royalty fee. The licensee does not have to follow the business system of the licensor and may be able to sell it to competitors as well.
Are there any franchise costs or ongoing fees that I should be aware of?
Yes, every franchise comes with three key costs: front-end, ongoing and end-of-term.
Front-end costs may include the franchise fee, legal and accounting fees, and any other upfront costs. Additionally, on the initial purchase, a franchisee may also be responsible for buying inventory, equipment, and supplies, and even pay master franchise fees.
Continuous or ongoing costs typically include things like royalty fees, advertising fees, and maintenance or development fees. Lastly, the end-of-term costs depend on the renewal agreement and the terms. It is important to consider these costs when looking to purchase a franchise.
Should I hire a franchise broker or a franchise lawyer?
A franchise broker is knowledgeable about franchising and can help you explore a variety of franchises that may comply with your goals and needs. They can also help you locate the best franchise opportunities that suit your budget, as well as help you understand and go through the franchising process, disclosures, and documents. However, you must ensure that your Franchise broker is working with the Franchise Disclosure document (FDD), which is the U.S. regulatory document of the franchisor.
Furthermore, it is best advised to hire a franchise lawyer to review key documents such as the Franchise Agreement and the FDD. A franchise lawyer is able to help decipher important legal language, as well as revise key agreements.
What should I look for when researching different franchise opportunities?
Finding the right franchise opportunity for you depends on several factors: cost, investment, location, industry, and franchisor history. When researching different opportunities, look for franchisors that have a positive history and solid experience within their respective industry. Furthermore, look for well-known franchisors who have a history of success and a proven track record. This will help you avoid investing in a franchise that may potentially fail. Additionally, investigate the area or region you are considering for your business – safety and consumer trends should be taken into consideration when conducting your research.