Getting to Know Franchises

This week on Marketing Chat, I talked with Bill Groble, an attorney who specializes in franchise law. We examined the world of franchises. For many, franchises give the impression that they are a ‘safe’ way to become your own boss. The perception is that they are “turn-key” so you will get training, as well as help with marketing, and that you are not in this all alone. There’s outside guidance if you need it.
That has always been my perception…until today. What they all seem to have in common is this – they offer a trademarked name (that is hopefully branded) and rights to a “system” to help you learn the business. But not all franchises are created equal – some offer more than others – as far as training, marketing support, back-end support. And there are fees – royalty fees, upfront purchase costs – and hefty ones at that. If you are considering a franchise as your next business move, here are some things to consider before you put down your deposit.
1. Not All Are Created Equal. Franchises vary – some have more rules than others – and some enforce them legally with regularity, so know the rules – read your franchisee agreement before you sign. Most of the rights belong to the franchisor. For example, you may be obligated to buy your supplies from certain vendors, even if you can find one that offers the same product at a lesser cost.
2. Buying In. When you are looking for a franchise, shop around. The “pitch” to get you in might be a hard one, so you may feel pressured to “buy now” or you’ll miss the opportunity. The deposits can range from $10,000 to $40,000 just to hold a place for you – before you’ve even found a location. Take your time, do your homework. Should you not be able to find an “approved location” – which means a site that is approved by the franchisor, you can’t open your business. Should you change your mind about the deal, it’s not easy to get that deposit back in your hands.
3. Shop Around.  Examine a few franchises – this improves your negotiating power, when it comes time to making a deal. The difference between a good deal and a bad one is in your hands. According to Groble, all franchise contracts are negotiable.
4. Expenses. Know the costs involved before asking for the keys. Rent, utilities, labor, uniforms, supplies – these are all your responsibility. This is not a partnership.
5. Experience. Some, but not all franchises require industry experience. It’s a better idea to find one where you have some experience – it can only help you down the road.
6. Your Rights. This is an agreement, for a certain time period. If it doesn’t work out, you can’t just turn off the lights and walk away. Nor can you take the branded “sign” off the door and start again under your own name.
I hope what you take away from this is to do your homework. If you have found this information useful, sign up for our e-newsletter for more marketing tips.
To hear this show in its entirety, go to: Marketing Chat with Nancy Sipera, 2/5/13
Source: The Law Offices of William Groble