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What to Consider before Investing as a Franchisee

Being an entrepreneur is a thrilling endeavor, filled with great potential but rife with risks. For budding entrepreneurs who want to maximize their chances of success, investing in a franchise may be the smartest move. While the idea of franchising offers incredible opportunity for businesses to grow, reach new markets, and extend brand loyalty, it’s not a decision to make faint-heartedly. Joining the franchise industry requires a deep understanding of franchisor-franchisee relationships, potential risks, and mindful understanding of what’s required of both the franchisor and franchisee.

The International Franchise Professionals Group (IFPG) serves aspiring and existing entrepreneurs in the industry with education, resources and tools to navigate the franchising landscape. From determining whether or not franchising a business is the right move to completing the due diligence process, our membership-based franchise network helps franchisees avoid common pitfalls and make the best decisions when it comes to investing and owning as a franchisee.

The goal of the IFPG isn’t simply to help our members get established as franchisees, but also to help them grow and thrive in the industry. To accomplish that, it’s important that potential franchisees consider the process of franchise investing carefully and ask relevant questions before taking the leap. To help aspiring entrepreneurs, the IFPG compiled the following list of frequently asked questions about investing as a franchisee.

Who is Responsible for Business Taxes, Marketing, and Legal Issues?

Typically, franchisors and franchisees share tax responsibilities, with the franchisor taking the lead on franchise-wide taxes such as royalties and copyright registration, and the franchisee typically responsible for local taxes such as state and sales tax. Franchisors may also help support advertising and brand building efforts such as creating marketing strategies, corporate website development, or implementing a loyalty program. As it pertains to legal issues, the franchisor is typically responsible for providing the franchisee legal documents such as franchise agreements, disclosure documents, and operational manuals. However, it’s important that a franchisee work with their own independent legal counsel to understand the contractual and legal implications of signing a franchise agreement.

What is a Franchise Agreement?

A franchise agreement, also known as a franchise disclosure document, is a contractual agreement between the franchisor and franchisee that outlines the terms of the relationship. This document may include information such as the franchisor’s background, services the franchisee is responsible for, company policies, pricing structure, royalty fees, termination rights, and other relevant information. It is essential that franchisees thoroughly read and understand this agreement before signing.

What Kind of Support Can I Expect After I Sign the Franchise Agreement?

Franchisors are typically responsible for providing support services to their franchisees, such as marketing, product training, operational guidelines, advice and consulting, financial and accounting assistance, technology assistance, and problem-solving. However, the specific services the franchisor provides may vary by brand or franchise. When researching potential franchise opportunities, be sure to ask what type of support is offered and what expenses are associated with the support services.

What is the Difference Between Franchisor and Franchisee?

The franchisor is the owner of the business brand, and they draw out the rules and regulations for the franchisee to follow. Franchisees are the individuals or companies who have entered into a franchise relationship with the franchisor, with the main purpose of promoting the franchisor’s brand, products, and services. In exchange, the franchisee receives products, training, operational support, and other benefits.

How Much Does It Cost to Invest in a Franchise?

The cost of investing in a franchise will vary depending on the franchise business. Some franchisors charge an upfront franchise fee, while others may offer a performance-based royalty structure. Additionally, franchisees should factor in the cost of inventory, equipment, supplies, collateral, and training. It’s important to research potential franchisors and calculate the total cost of ownership before making an investment.

What is a Franchise Broker Group?

IFPG is a membership-based franchise broker group that offers resources and support to both franchisors and franchisees. Our goal is to provide entrepreneurs with the education, resources, and tools they need to invest in a franchise without making common mistakes. Our team of franchise brokers are well-versed in the complexities of the franchise industry, and our innovative training has set the bar for franchising.

Topics:

Investing in a Franchise,

What is a Franchise,

Franchise Costs

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