Franchising

Franchising a company is a big decision and a major change in direction for most companies. The good franchise systems are ones that plan appropriately and put together the pieces before they get into this game. As the saying goes, you either "when you fail to plan you are planning to fail". The same holds true for franchising. Good franchise endeavors have great franchise business plans. So what constitutes a good franchise business plan?

The key ingredients include several pieces, like any good recipe. If some of the ingredients are left out the final product just won't taste right, which in franchise business planning that means big problems. The business plan sets the stage for a franchise expansion program. It literally acts as the foundation upon which the house will be built. Everything in the franchise program should have uniformity and continuity with what is defined and determined in the franchise business plan.

The business plan should begin with goals and objectives. What is the purpose of franchising? What is the goal for the company and where do you plan on being in five years? These goals will set the standards for the plan and identify how you intend to get there. You then should establish the buyer profile, who will be purchasing these franchises and opening up locations of your operation? The better franchise plans have more specific descriptions. Bad example: "middle aged person with income around $100k". Good example: Female, ages 35-45, experience with children preferable age ranges between 5-12 years old, married, existing capital of $100k, sales ability, work ethic, married at least 5 years....etc.". Get specific in the franchise business plan, that means you are honing in on your targets.

We then need to define the business issues of the business model. What will a territory look like for the franchisees? We don't want to overcrowd markets and we also don't want to give away business. Franchising is about saturation, take advantage of all market opportunities. After the franchisees have been established it will be extremely critical to have an ongoing support program for the people who have committed their futures to this franchise organization. Good business plans clearly identify the training programs, processes and materials that will be used to get franchisees up and running and then to keep them happy and successful once in the system. With this comes hiring management and support staff. The franchise business plan should clearly identify who, when and what role they will fill in the franchise organization. The type of business will dictate how many people and at what times in the franchise expansion they should be brought on board.

The business plan should also go into specifics regarding the franchise fee structure. What will the franchise fee be for this model? What will the royalty percentage be......and why? Will there be an advertising budget set to build the brand and if so what is the buy in for the franchisee to be a part of that co-op ad fund? If there are products included in the franchise system that the franchisor would like to sell through franchisees what is the distribution structure for delivering and supporting that part of the franchise system? All of this should be clearly outlined in the franchise business plan.

In the end, a complete set of pro-formas and financials should be established to define the ROI for both the franchisee and the franchisor. This can be used as an investment tool, to raise capital and most importantly as a road map for running and operating the business as the system grows.

What are the considerations you must take into account before buying franchises, and how do you understand and evaluate the pros and cons? Well it is not an easy task but I hope the following will give you a head-start and illustrate the need for very detailed due diligence on your part.

Pros of Franchise Businesses.

A well-known and established franchise business be it global, national or regional will bring with it brand recognition, trademarks, logos and most importantly customer recognition of its product quality and service. This gives the new owner of a franchise an immense saving in establishing goodwill and advertising.

You receive an established business system that has been proven to work and so minimizes the amount of time and expense that would normally be experienced when starting a business from scratch. The system will have been subject to scrutiny from many franchise owner operators over the years.

Most Franchisors have highly developed advertising programs, supporting the sales and marketing systems that have been proven and the franchisors, in general, continue to provide help and support to their franchisees.

The franchisor will have established suppliers and the supply system will provide the support that a new fledgling business would take years to develop. You can be assured that the franchisor has an ongoing monitoring program that will quickly address any problems in the supply chain.

The collective purchasing power of the franchise and the central control of the purchasing mean that you get a consistent high quality product at the lowest possible cost. Most smart franchisors do not screw down their suppliers on price but by allowing them a reasonable profit they establish long and successful partnerships.

Franchisors have well developed training programs for you, your managers and staff. They will demand that you commit to a regular training program, which will ensure that your business is capable of operating to the level of service that is promised to the public through advertising programs.

Operational manuals covering all and every task in operating the business, from sweeping the floor to dealing with an irrational client, are provided and are constantly revised as new products or methods are developed. This gives standard quality and uniformity to the entire system.

As a franchisee of a successful franchise chain your access to finance is greatly enhanced. Financial institutions feel comfortable in dealing with known franchises that have a track record of success.

Many franchisors own or control the sites where the business is located and they will generally charge rent on a percentage of sales with a minimum monthly amount. Other franchisors allow the franchisee to own and develop the site and will generally provide help and advice with site selection, engineering, etc.

Finally if the franchisee operates the franchise business in accordance with the system and is professional in business dealings, has shown a commitment to the community and fellow franchisees, then that franchisee will normally be considered expandable. This means another store location is offered and if this succeeds then another and another. You can build a serious size business in this manner as many can attest to. Many millionaires have walked this road.

As with every type of business there are the Cons and a Franchise Business is no different and so below are listed some of the deterrents of Franchise Businesses.

Cons of Franchise Businesses.

The most obvious, but one that so many fail to take into consideration is the need to conform to the system. You no longer have total control of the way you operate a business. Your freedom to make decisions is limited however initiatives that help and strengthen the system as a whole are generally encouraged.

You will be paying the franchisor a Royalty Fee that you may come to consider excessive but you should have discovered this in your due diligence. No franchisor would or could by law not disclose this. They will not change it so don't ask.

There is generally a national/regional advertising fee and in many cases you have a say in how this is spent. Your opinion, although sought, may not be acted on and this may be because the greater picture dictates it or worst, the franchisor's executives controlling the funds are autocratic and/or incompetent or worst still dishonest, cutting personal deals with advertisers.

Because you are part of a system you are prone to attacks on the system from individuals, agencies or whoever, for something that you have had nothing to do with or any knowledge of. The systems problems therefore become yours.

Some of the decisions taken by the franchisor may directly affect your business and you find yourself with little if any recourse. The most common of these is known as Impact. Impact is when the franchisor opens another outlet in the area that causes you loss of business, and they may even sell the location to some one else or keeps it as a company outlet. Remember that the franchisor is always looking to maximize Total System Wide Sales even at the expense of your bottom line. You are not only expandable but also expendable.

Summary of the Pros and Cons of Owning a Franchise Business.

When you look at the world through rose tinted glasses, you see beauty and softness in all around you, but in reality the business world is far from being all beautiful and rarely is softness displayed, so leave the glasses at home when you start looking at franchises. Not all franchises are the utopia of money making. You need to be very careful and thorough in your research and due diligence before buying any franchise. Despite the disadvantages, a franchise business generally offers real advantages over doing it on your own.

Yes, a franchise business is considerably less risky than most start up businesses, however the franchisor does not guarantee you will be profitable. You the franchise business owner ultimately must take full responsibility for the success or the failure of the business and if you are good at what you do, then the rewards can be quite substantial.
Walter Raleigh - Copyright 2006©

First of all, congratulations! Franchising is the most powerful method of business expansion. Although it is not without its occasional drawbacks, many business owners see franchising as an exciting and natural next step towards growing their business.

Being prepared and properly counseled as you take the leap into franchising is critical. Making simple mistakes can turn into real problems down the road. Here are a few things you should strongly consider once you decide to franchise:

Hire an Experienced Franchise Consultant

Good franchise consultants have seen it all and can spare you the anguish of reinventing the wheel. Franchising is a highly unique and specialized method of doing business. Remember, you are growing your business by partnering with other independent business owners. This requires an entirely different set of business strategies and disciplines than say, growing regional office branches with branch managers.

The proper franchise consultant can become a massive strategic and cost saving advantage for your project. Skilled franchise consultants can provide you services such as:

• Creation of operations and other franchise manuals
• Help working with your attorney and planning your franchise system
• Fielding the hundreds of questions that will come up as you move ahead
• Training you how to "Be a Franchisor"
•...and much more.

Unfortunately, the world of franchising has all but confused what a Franchise Consultant really is. Some "Franchise Consultants" are merely commissioned sales people that represent franchisors who have agreed to be a part of their menu of franchises they offer to people looking to buy a franchise. So be aware that not all franchise consultants are the same.

Here are a couple of essential questions you should ask franchise consultant candidates:

• Have you ever served as an executive of a franchisor company?
• Have you ever been a successful franchisee?
• How long have you been in the franchise industry?
• Are you a Certified Franchise Executive?
• If I hire you, will I work with you or someone else in your company?

Legal Expertise I have rarely met an attorney who does not say, "You need a Franchise Disclosure Document? Sure! I can do that!" Real estate, immigration, criminal defense, tax, even aviation attorneys have told me they can produce Franchise Disclosure Documents!

A franchise disclosure document is a highly sophisticated document that often exceeds 100+ pages with constantly changing industry nuances all regulated by the FTC. It is a regulated and critical part of your ability to franchise in the U.S. and many states have their very own unique requirements. Don't be fooled or lured by offers to do your FDD for cheap. And for those of you thinking you can download one and make your own, forget it.

What you need to complete this mission is a bona fide Franchise Attorney. For even greater efficiency ask your franchise consultant which Franchise Attorney they like to use or recommend.

Quantum Shift Making the shift from day-to-day operator to franchisor is an important change. One day you are fielding phone calls from employees calling in sick, checking in the supplier order, and making deposits, and then the next day you are discussing franchise agreements, taking minutes at franchise advisory meetings, and planning national conferences. For some the switch can be pretty difficult and in fact some simply cannot pull themselves from their business enough to support the new franchise initiative.

Learning how to reorganize and focus your efforts towards franchising takes work and planning. Your new mission becomes the support and success of your franchisees. Are you ready for a quantum shift?

Spread the Word

Now it is time to get the word out and let the world know you are franchising. Once the franchise community is aware that you are franchising, trust me, your phone will light up will daily phone calls with everything from franchise brokers to trade show companies to print publications to internet portals to skywriters. All claiming to have the most revolutionary and amazing answers to quench your thirst to sell franchises. Again, your franchise consultant can help you filter through the noise and zero in on options that not only fit your budget but also give you the most promise for return on investment.

Now Go Forth and Prosper!

For many people franchising their business is the natural and smart evolution to their successful and exciting business. Be sure to plan carefully and surround yourself with people who know what they are doing.

Franchising is an exciting business to be in. Now go forth and help others prosper!

Master Franchise

Whilst owning your own franchise can be very profitable buying a Master Franchise is even more so because of its additional income streams. When you buy a Master Franchise you are awarded rights under agreement by a franchisor to use its marks, technologies and systems to enable you to build your own network of franchisees within your designated territory. Franchisors use this method to allow investors like you to buy a Master Franchise to grow their franchise much quicker than the traditional franchisee roll out. As a result they share the profits with you as the business expands.

With the help of your franchisor you would advertise the opportunities available for franchisees in your territory. Franchisees would be selected from the applicants for territories based on the Franchisors pre determined criteria that you would use to ensure that successful applicants exploited the profit potential of their allotted territory which ultimately would result in the revenue growth of your business. Because franchising is systemized a specialist Franchise Broker may have been appointed to handle franchisee sales and this would mean that you would not have to handle any initial inquiries, meet with franchisee prospects or follow up on those meetings. The broker would handle all this for you from leads generated by approved advertising online or other methods suggested by the Franchisor. This would reduce your workload considerably allowing you to spend your time on meeting qualified applicants with the broker to see if you wish to select them to be part of your franchise team and also handling the support side of your business.

If you buy a Master Franchise you can earn income from multiple income streams; firstly you earn a share of the initial franchise fee paid by the successful applicant to join your franchise network, secondly you earn a share of the weekly franchise fee paid by the franchisee which is usually calculated as a percentage of the gross revenue of their business and thirdly you can also share in the profit generated by the products that your franchisees order through you that they require to service their customers. The idea is to profit from each franchisee appointment and then to enjoy ongoing income as your network expands.

The opportunity is there for you to build a substantial income with the potential for significant capital gain. Effectively build your network then profit every time someone is serviced within it.

When you buy a Master Franchise as opposed to starting your own business you have a head start as the Franchisor has gone through the initial start up phase of the business and developed the methods and technologies required in building a successful franchise. They will have implemented procedures and systems all of which will have been outlined in comprehensive operations manuals. You have the business opportunity of being part of something that is already geared for growth and the support of the franchisor that partner with you for mutual benefit.

Depending on your investment level you can secure a prime territory with a significant share of the percentages on offer from revenue. You should look for a Master Franchise opportunity with an area large enough for you to maximize your yield on investment. Outsourcing the support roles can free your time up further so with your Franchisor, the Franchise Broker and the ongoing support person you can concentrate you time on building the Master Franchise business rather than the day to day running of it.

Not all franchise will use the Master Franchise model to roll out their territories, as they need to give away a significant share of the profits to a master so you need to look to find the opportunities. Franchises or Businesses for sale websites or Brokers websites are the best place to start. Generate a list of those that appeal to you and then research online or shorten your list down to those that you will follow up. Then follow the path any franchisee would by contacting the relevant Franchisor to request information on the Master Franchise opportunity that is on offer. Be aware that confidential information as to methods and profitability will not be discussed on the phone and usually you would be required to sign a confidentiality agreement and meet face to face to find out all about what is on offer.

Meet the person who owns the Franchise as they will be the person you are working with on your new venture, discuss with them what has been achieved and what their vision of the business is and ask what plans are in place to achieve those aims. Remember their goals will be the blueprints for your success so make sure that you both have a synergy of purpose before deciding on proceeding. Then request a copy of the Franchisors Disclosure document, which should outline all the initial and ongoing costs to be part of the Master Franchise Business. Seek professional advice on the documents before committing to signing them. Having a successful Master Franchise can be very lucrative especially if you get involved in the initial growth phase of a Franchise that will build into a successful model.

Ensure that your Master Franchise Opportunity includes your own outlet. This will give you credibility with your franchisees but more importantly it should give you cash flow from when it opens. If the Master Franchise you have chosen is new to your territory it will also provide a point of reference for your prospective applicants. The opportunities are there for you to be in business for yourself but not by yourself.

When buying a franchise business there are a great number of things you should carefully consider in order to help you avoid some of the major pitfalls.

The following are just some of the steps you can use to limit the chances of buyers remorse. The point being, that if you pick the wrong franchise without due diligence you could be regretting the decision for a long time to come. I hope you find this useful.

- Use a franchise broker.

Franchise brokers work with several, in many cases hundreds, of franchises over dozens of different industries. The services of a franchise broker are free and do not add to the cost of the franchise. What a franchise broker does is to get to know you through a series of questions and then presents you with some possible franchises that you qualify for based on the answers to those questions. They also help you every step of the way with items such as where to find information in the Franchise Disclosure Document (FDD), what questions to ask when talking to the franchise and scheduling and planning a discovery with the franchise. The use of a franchise broker saves you time and aggravation and it helps the franchise find qualified candidates. It is truly a win-win situation for both the franchisor and the prospective franchisee.

- How does the economy affect the type of franchise you are considering?

What impact will a change in the economy have on the franchise or industry that you are considering? Typically non-essential service and luxury products will suffer more than essential items or services or those that offer some sort of cost savings.

- Is the franchise operation dependent on the owner or manager and would it be able to survive a change?

Some franchise operations succeed mostly due to the influence of the owner or the management team. How big of an impact would a change in this area cause if a change were to occur? Would the franchise model work regardless of who owned or operated the business? Depending on the franchise model some business are just as much about the people involved as the product or service they are providing. This is something to consider if you are planning on running the franchise for a few years and then selling it. You may not want a business model that will be dramatically affected due to change in ownership.

- Is the franchisor proactive in developing new business?

Part of the back office support for many franchises is marketing in an effort to get more business for their franchisees. In some cases, such as with some janitorial franchises, the franchisor will actively market a certain area with mail out's and phone calls in an effort to get business for a particular franchisor. This can be good and bad, as it can cost the franchisee a percentage of the contracted amount but at the same time it is a sales tool that helps grow their business. If you are considering a franchise model that actively gets business for you be sure to find out how the franchisor is paid for the marketing and how much they charge for this service. You have to make sure that the cost of getting the new business is not going to outweigh the money you make from that new business. This sounds logical but sometimes it's not as obvious as it seems until you sit down and run the numbers.

- What are the profit margins?

When you are looking at the financial projections for the business you will need to determine what the net profit will be after all of the franchisors fees are paid. There are two problems with trying to get a fairly accurate figure when looking at franchise opportunities. In the United States the Federal Trade Commission does not allow franchisors to make income claims. In other words, not only can they not tell you about what you can expect to make, but they cannot even give you figures that you may be able to use to determine your overhead and income to determine your profits. So, how are you supposed to find this information? When you request information from the franchisor they will send you what is called a Franchise Disclosure Document or FDD. In the FDD they do have projected high cost and projected low cost listed but as for projected income, you have to contact some of their franchisees. Now the income and fixed cost will vary from region to region but the franchise fees remain the same. Be sure to review all fees and charges that the franchisor charges in addition to their franchise fee, such as a marketing fee, accounting fees and so on. In the case of some companies they have a minimum that they charge even if you make no money, so be careful.

- A good franchisor will invite you for a "Discovery Day" at their franchise headquarters.

The discovery day is a chance for you to go to the main office of the franchise and meet the people behind the franchise. It also allows you the opportunity to see behind the scenes and see how they are run, ask questions and determine if this is the type of company you want to be associated with. In essence buying into a franchise is a lot like getting married. There has to be trust and you better like them because they are more than likely going to be with you for a while.

Please NOTE.This not an exhaustive list of the factors that make a good franchise, but should give you some key areas to look at. Take your time, take care and take advice.

In December 1827 the American author, Charles A Goodrich coined the motto which is now popularly quoted as "a place for everything and everything in its place". In doing so he was merely drawing on the pre-existing idea that there is a natural order and size for everything and to go against that order is to invite trouble. So as we search the universe for Goldilocks planets which are neither too hot nor too cold and therefore may sustain life, we hear tales of dinosaurs being too big for their own good and understand that giant vegetables grown for competition may not be the best to eat.

The same is true in business. The BBC television programme Dragon's Den regularly features individuals who are commended for their idea but rejected as the business is not scalable. In fact, the commonest causes of business failure include expanding a business too fast or attempting to expand beyond a natural size. The step up from individual entrepreneur to multi-site business is not an easy one and many fall along the way.

When considering business expansion one option which is far too frequently ignored is that of franchising. Bringing your business or idea to the market place by way of a franchise can enable the business and brand to expand rapidly without the attendant cost and staffing implications. Although the British Franchise Association (BFA) warns that not all businesses are suitable for franchise, the franchise model does work for a far wider range of business types than mere coffee houses or stationary providers.

Successful business franchises are based upon a robust business model supported by a comprehensive franchise contract. Whilst franchising brings many benefits, the franchisor is partially handing over their reputation and their brand to others and this can have implications for the business as a whole. In a global 24/7 marketplace the actions of one franchisee will reflect on the franchisor as well as the other franchisees and therefore the franchise contract needs to cover every conceivable eventuality.

This means that a franchise agreement cannot be written on the back of an envelope but will require specialist franchise contract review advice from a franchise solicitor. In fact, those who specialise in franchise agreement reviews need to not only have a deep understanding of the law as it applies to franchises but also a strong grounding in business processes. This enables franchise solicitors to take account of all the nuances of a particular franchise; and those looking to set up a franchise or become a franchisee ignore specialist franchise contract advice at their peril.

Whilst this may seem like a doom laden warning, the truth is that it is only when something goes wrong that the true nature of an enterprise is revealed. Good franchise agreements are as much designed to pre-empt trouble as they are to act as a rule book. So, potential franchisors should take specialist finance contract advice and potential franchisees should also commission a franchise solicitor to undertake a franchise contract review.

These franchise agreement reviews are vital in ensuring that the franchisee is fully aware of their obligations under the franchise contract.

From a franchisor's viewpoint the potential to be gained by way of rapid business expansion, income growth and the spread of risk is a heady mix. Similarly a potential franchisee can easily succumb to the temptation of an existing business model, strong brand and business support from the franchisor. But unless an in depth franchise agreement review has taken place both parties may be simply stepping into the franchise arrangement with their eyes shut.

Perhaps that is why franchise solicitors are often asked to mediate or advise on franchise disputes. These often arise when the original franchise agreement review has not ensured that franchisor or franchisee fully understand the nature of their obligations under the finance contract. Franchise contract reviews are also required on an ongoing basis to ensure that the franchise contract continues to meet the requirements of an ever-changing business world.

Whilst there are those in the business world who are content to remain a "one man band"; for many the drive to expand, to build, to secure is part of their business DNA. Those who take the franchise route have the potential to successfully take their business far beyond the natural size for a single outlet. By spreading risk, injecting capital from franchisees, taking advantage of bulk buy-discounts yet minimising staffing levels the successful franchise has the potential to be a global enterprise. So maybe we need to modify Goodrich's motto to read ""a place for everything and everything in its place, unless you franchise".

For many people who would like to start their own business the thousands of franchise opportunities that are being advertised out there promise a fast start to getting into business for themselves.

Starting your own business can be a difficult and long drawn out process, full of pitfalls and traps for the novice entrepreneur and unfortunately a significant number of businesses never reach the break-even stage.

To buy a franchise business allows you to shorten the learning curve considerably. Not only will you instantly be trading under an established name - which has most likely taken years, if not decades, of nurturing and promoting to establish - but you will also have access to the business know-how and experience which has made the franchise a success. The person who founded the business into which you may buy a franchise would have possessed a whole lot of sheer bloody-mindedness and extraordinary drive to not only have created the business concept in the first place, but to steer it to where is now - a (hopefully) successful franchise. If you do buy a franchise opportunity, you will be buying into, and be able to benefit from, the same culture of success.

So what are the reasons to NOT buy a franchise? The two main reasons are cost and restrictions.

Starting a franchise will often cost more upfront than starting an original business concept. This is because you will have to pay a franchise fee which covers the franchise development costs, franchise marketing expenses and the franchise training program. There will the be additional costs of a franchise royalty and usually you will need to contribute to the franchise advertising fund. Additionally the franchisor may insist on a minimum amount of working capital to be available.

Whilst these expenses may seem high, they will normally be realistic and help ensure that your new business is successful. On the other hand starting your own business may be possible on a shoe-string budget, but it will be a lot tougher to get to the break-even point.

Some of the restrictions that the franchise agreement imposes on their franchisees are there for a good reason: The franchise business model has been finely honed, possibly over decades, and one of the constant battles a franchisor has is resisting the implementation of every new bright idea that franchisors want to try. Uniformity is important in the franchise world. Every customer who is familiar with the franchise chain expects to see the same products, the same branding and the same "look and feel". It is one of the aspects of franchising that appeals to customers.

Another restriction that may apply is one of territory. Although this is becoming less prevalent these days, many franchises still make it a requirement to define a territory in which the franchise may operate. Such a practise may have the effect of reducing competition in a particular territory and so give a new franchise a better chance of success. On the other hand owning a franchise territory may place heavy burdens on the franchisee who may be expected to develop the territory and reach certain milestones within a given period.

So there are many factors to consider when making the decision whether to buy a franchise or start a brand new business concept, but for many, the discipline and guidance from the franchisor will make buying a franchise a wiser choice.

What CA Needs To Do To Address Issues in Franchising

We should not allow anymore degradation of California through incessant over regulations in the franchising sector. No other sector of our economy provides as many jobs as franchising. Some people might say retail, yet over half of all retail jobs are also franchises. Now then; There is a problem in the franchising community with the way the Department of Corporations goes about it's business. First there are only 12 franchise registration states in the United States currently, down from 14 two years ago. California is one of them, considered by even attorneys who make their living filing forms the most onerous.

It is considered the most hostile by active franchisors as well, of which there are only 2230 total in the USA, which franchise about 380,000 outlets at an average of 15 employees. Not all these franchisors provide businesses or franchises in CA to the many displaced workers there. The reason is the slow nature of the process at the Department of Corporations and the hostile and perceived hostile bureaucracy of the Department and the hassles and horror stories, which are discussed in the industry. 1/3 of every consumer dollar spent in the State of California goes through a franchised business. If those businesses do not exist, then no one works there, no cities derive revenue from the sales taxes of products since no products are sold where no store exists, no state income tax is earned since no one has a job there, buildings stay vacant and people who wish to own their own business stay unemployed or underemployed and never get a chance to pursue that part of their American Dream.

Less franchisors mean higher franchise prices for those who do participate due to lack of competition and for the consumer or business owners less of a return on investment for the business owner due to these prices. The department of Corporations is suppose to be helping consumers, not insuring that they pay higher prices for franchised businesses to pursue their American Dreams. You can then compound that with less consumer choice and slowing of money flow/supply, which means less revenue to the state. The adverse effect being caused by this Department is utterly in-excusable and that is being nice and gentile. All this has occurred in CA due to the duplication of Federal Trade Commission Laws in the California Franchise registration and renewal process.

Franchises are not like Business Opportunities where much fraud takes place, in franchising it is a long term relationship and one which is closely scrutinized by attorneys in the franchising field. In other words any franchisor trying to pull a fast one over on the consumer would have to deal with many private lawsuits and the later FTC. Yet the Department of Corporations adds a third and unnecessary tier to the situation, which stifles free enterprise through slow processing of applications and renewals. Since the laws are a little different it compounds the problems of uniformity of concept and thus hurts economies of scale, which franchisors and franchisees enjoy so they can compete against the larger box type stores, which are crushing the little guys. Little guys meaning small business, which employs 2/3 of the population in the state of California. Every time one of these franchisors is delayed in the application or renewal times it costs the state money in tax revenue and Californian constituents in jobs, lower standards of living, higher prices (artificial inflation), reduced choice and options in pursuing of their American Dream.

What started out as a good idea to regulate Franchise Businesses at the DOC in California many years the prior is no longer needed as the private right of action to sue, attorneys who specialize in franchising, industry associations and the Federal Trade Commission have more than filled in the gap. The pendulum when the DOC is added to the equation by unnecessary duplication, additional paperwork, time to process only compounds the issues of slow recovery or our CA economy and of course lost sales tax revenues to cities and income tax payments and fees to the Great State of California. Recently on the ABA-American Bar Association for Franchising's online 'list serve' the franchising attorneys throughout our great nation, many of which practice law in California were commenting on the problems with franchise registration renewal and applications being delayed for a stamp of approval. The fees are not bad considering the CA market size, $600.00 but the review process is a real quote: "bitch". Don't quote me alone, the whole industry agrees, it is a universal truth now as perception is reality. And even though some years we have had a quick return of application other years they have been many months, which is quite a more common occurrence. With this poor business attitude few franchisors look forward to the California market, regardless of its status as the seventh largest economy in the World, which apparently has gone to a few people's heads. The reality is that Franchisor's who are amongst the largest group of economic inflow are not quite as excited as you might think, quite the contrary. Many dread the day when their brands are so large that it is time to finally go into the CA market place. And please do not take it from me, ask around the franchising industry which state is the worst place to do business as a franchise company? The State by allowing the duplication of resources with the Federal Trade Commission is cutting off the hand that is feeding them.

Think of this, we are hurting 2230 companies which account for 1/3 of every dollar which goes through the hands of consumers, that is 33%. No other business format can compete with a Wal-Mart type box store without the incredible synergies and economies of scale that franchising delivers. Wal-Mart by the way Nationwide only does 10%. The consumers of California deserve a break, the franchising community is drowning in paperwork, the DOC cannot do the job fast enough and to top it all off it is a complete duplication of rules? With budget cuts the DOC will slow processing further, when in fact if you closed the franchising division at the DOC, you could save millions per year and increase capital inflows and jobs to the state and greater inflows of tax revenues to city, county and state governments. This is not really a very hard choice to make, if you are looking to cut, there is no better place than the DOC Franchising Division. If you must keep the fees, maybe lower them to $400.00 per year for "franchise notification" (notification can be done online and notification fees can be mailed in or taken by credit card-if you need web assistance for this, I will volunteer my web team at no charge and have this up and running within the week) and have the franchisors agree to abide by the Federal Trade Commission's rules on franchising (this is done in both FL and TX where no problems have been heard of), and watch the franchisors of this country come in and set up businesses for unemployed Californian's who were use to making $60,000-100,000 per year so they can pay income tax to the state, by setting up franchises and employing even more folks.

These franchised units will provide jobs, create sales tax for cities who are telling me they could really use it about now, even with Schwarzneger's recent release of monies to them. This will also spur on growth in commercial real estate and fill up some of those buildings, which are empty, with warm bodies who are making a living and pursuing their dream. The average consumer in CA is living in a house they put 3% down on, refinanced twice, driving an SUV they bought for zero/zero, trying to afford soccer shoes for their 2.2 kids and figure out how they are going to pay off all those credit cards and student loans for degrees that will not help them in the future. Surely you can see the real problems and this simple solution. Our company has estimated that we alone could provide 4,000 jobs to the state of California in three years, yet we have focused in 23 other states across this nation. Please see the truth, we are hurting the entrepreneur, I myself have worked hard all my life to build a business and do my part to strengthen our state and my country. Help me with the regulatory nightmare and I and all my fellow franchisors will help you fix this problem. When I started my business at age 12, I was told, that I was part of the ten percent of Californian's who were self employed, that we together employed 2/3 of the people and that I and my fellow business owners were of value.

If so, then why do we duplicate and layer all registrations, applications, paperwork, rules, etc on top of one another sending a clear and present message that California is all show and no go and that we do not believe in small business or entrepreneurship. If you continue to send this negative message and if this is true, then how can we believe in you? Will you please delete the franchising division of the Department of Corporations, as it is an unnecessary division of that department. By doing so you will achieve the following: 1.) save the tax payers, 2.) help economic growth by employing citizens 3.) generate tax revenue to my state 4.) send a signal to the franchising and business community that California means business Please help me, so I can help them and they can help you and you can serve us, and together we can all live free, feed our families and enjoy everything that makes California the greatest state in the country.

Signed, The Entrepreneur.

Franchisers charge a substantive fee to franchise owners to cover the initial startup costs and to maintain grown within the company. Depending on the company and the type of franchise you own, the franchise fees can vary from business to business. While a franchise payment is important in allowing the company to grow and prosper, the main source of income for the company should always be based on the amount of royalties it makes from the sale of its products or services.

A franchise fee that is set too high may make potential franchisees think twice about becoming professionally involved with the company. It is important to determine an appropriate franchise expense and using your franchise consultant and legal team to negotiate a fee that works for both parties. Take into account the specific service or product the franchise will provide, along with the potential return of investment and profitability of the business.

Sometimes, in a market that doesn't have a history of a certain type of product or service, these fees will have to be estimated because there is no statistical data on the ROI of the business. Your financial performance and the financial performance of other franchisees like you determine the fee that will be assessed in the future to other new franchise owners. If you're entering a business environment with a product in a somewhat untested market, you may have a lower franchise fee. However, if you're opening a franchise in an environment that has had proven success and profitability, the franchise fee will be higher.

You also must consider the startup costs and expenses the franchisor has to invest. If you are opening a franchise in an already established industry, for example - a fast food business, the difference in franchise fees may be more obvious. In this type of industry, the franchisor is responsible for the costs and expenses associated with the marketing and advertising. They will include these factors in the franchise fee, as well as the costs for training materials and other startup expenses such as the assistance provided during the grand opening phase.

Some franchise companies look to make a profit by charging a franchise cost that is too high. Others look to charge a fee that will even out, while some even charge a franchise fee that is low and will cost them money initially. The hope is that the royalties and profits made will far surpass any losses they endure from a smaller franchise fee. Most franchisers will try to at least make a 25% profit on the fee. Of course, they are providing the marketing materials and advertising development. If all goes successfully, you'll recoup the money spent on the franchise fee and begin to operate a profitable business.

Master Franchising Provides Profitable Opportunity
Licenses are harder to find, but the advantages are worth it.

When exploring the option to buy a franchise, investors with substantial assets to invest may have the option to buy a Master Franchise.

What is a Master Franchise, and how does it differ from regular franchise ownership? A franchisee typically buys a single franchise unit, such as a restaurant or retail store. A Master franchise buys the rights to develop multiple units within a defined territory, which could be a city, a county or even a country.

The Master franchise license entitles the owner to collect fees and royalties from the franchises within the territory. This in turn provides a lucrative income stream. The Master franchisor is in fact a sub-franchisor of the parent corporation, and takes over many of the responsibilities for recruiting, training and supporting franchisees.

There are several ways to profit as a Master franchisor, who basically buys the rights to:

* Sell franchise units to franchisees, and keep a major portion of the initial franchise fee.

* Collect ongoing royalties from franchisees within the territory.

* Distribute and profit from products used in the franchise units.

* Profit from real estate negotiations and transactions associated with franchise properties.

However, the Master franchise does not have to start a business from scratch, developing systems and processes by trial and error. Like a single-unit franchisee, the Master Franchisor invests in a proven business with an established brand and customers.

Most Master franchisors do own and operate a single unit, and often use this location as a training ground for new franchisees within their territory. This unit may be the initial entry point into franchising, and with success of that unit, can come the rare opportunity to buy a Master franchise. Just as with single franchise ownership, a Master franchisor has to present a convincing business case to qualify for the license and to get financing.

Finding an opportunity to invest in a Master franchise can be difficult, since far fewer of these opportunities exist than for single unit franchises. And a Master franchise calls for a substantial investment usually requiring at least $75,000 up to $250,000 in liquid assets.

In return for that investment, Master franchisors enjoy several advantages in addition to profitable revenue streams:

* Few or no employees to manage.

* Low overhead to run the business with little office space and equipment required.

* No retail customers - territory franchisees are the customers who pay for the support provided by the Master franchisor.

* Operational support from the larger franchise system.

* High probability of success since 92 percent of franchise businesses do succeed.

* Personal independence since, once established, many Master territories can be operated part-time.

A Master franchise license should not be confused with an Area Developer agreement, which stipulates that a franchisee will sell and open fixed number of units within a given time frame in a designated territory. Area Development licenses are more commonly used to introduce a franchise in a new country.

To find out more about buying and operating a franchise, visit http://www.franchisedirect.com

The "up side" to Master franchising is nearly unlimited, and most Master franchisors are able to lead a "semi-retired" lifestyle after only a few years. The financial investment is large, and the initial efforts in recruitment and training can be rigorous, but once franchisees are established, the Master franchisor stands to gain a substantial, ongoing passive income for many years.

If you're looking to purchase a food franchise opportunity, then there are a few things you need to know. In this article I will discuss how to analyze food franchises to determine if they are worth the franchise fee you must pay in order to get them. Specifically we will talk about determining if they have a workable profit model, if the marketplace is saturated or not, and analyzing the food franchise agreement. After reading this article, you should have a good understanding of what a profitable food franchise looks like.

Food franchises are a dime a dozen. But finding one with a profitable business model, that's another story. The most important thing when choosing a food franchise is to determine whether or not it is a good investment. The most important thing to look at is the demographics of the food franchise compared to the location. Just because a food franchise has a working system, doesn't mean the system will work in your location. You must locate a food franchise that coincides with the proper demographics for your area.

Even then, it doesn't mean you will be profitable. Sometime food franchises that are wildly successful, quickly saturate the market. This means they eat up all the demand. If there is no demand for your franchise, and you will not make any profit. Besides saturation from other food franchises, you must also analyze your competition. Is there room for you to enter into the marketplace and gain a share of the market? You need to do the research to find out.

Finally, everything hinges on the food franchise agreement. The franchise agreement will cover everything from what products and services you're allowed to sell, locations you're allowed to use, all the way down to the signage and franchise name rights you have. Franchise agreements need to protect your rights, and not just the franchise itself. Before entering into agreement to purchase a food franchise, consult a franchise lawyer first to look over the agreement to make sure you're getting a fair shake.

In conclusion, a food franchise can be successful if it is located in the proper area, if there is a demand in the marketplace for it, and if you enter into a reasonable franchise agreement. Follow this advice, and you'll purchase the right food franchise opportunity.

Even the biggest multinational company has humble beginnings. Many of the brands and companies that are known all over the world started as a small family business. A number of these companies have achieved success after they have franchised their own businesses. Thus, if you dream of becoming big and successful all over the world, you might consider franchising your business.

Before you get excited over the prospect of franchising your business, however, you should first consider if your company is ripe to undergo such a big a step. Your business is ready for franchising if it possesses the qualities enumerated below:

Longevity and Size

Many experts believe that your business is ready for franchising if it has been operational for at least three consecutive years. However, if your business concept is hot and really good, you can start franchising it even if you just celebrated your first anniversary.

As for size, your business should be big enough to be able to attract other investors. People who are in the look out for business to franchise want a company that has a proven track record of success.

Transferability of Concept

In order for your company to be a successful franchise, your business concept should be easy to duplicate. People who buy franchise do not want complication or difficulties, so you need to organize your system and concept first, before you even start thinking of franchising it. Remember that the success of your franchisees will also depend on how well they will able to replicate your system and concept.

You also need to know if your business can easily be adapted to different locations and countries. If your business is highly localized, it may be quite difficult to set up a franchise of your company elsewhere.

Profitability

How will you able to convince other people to buy your franchise if you company is not making money? Before you even start thinking of franchising your business, you must already have a consistent record of financial success. You have to take note that your people are interested in earning and making money; thus, if you cannot assure them that your concept and system is profitable, it may not be the proper time to franchise your business.

Marketability

Before even thinking of franchising your business, you have to consider if your concept or business idea is easily marketable. Many companies decided to franchise their business when many prospective investors were the one clamoring for franchise deals. You will know that you are ready for franchising, market wise, if your customers are the ones who are already asking you to franchise your business.

Affordability

One of the things that prospective franchise buyers will look at is the cost of their initial investment. Higher investment needed to operate your business, will mean fewer people will be interested in buying your franchise.

Aside from the cost of the franchise and business operation, many possible business partners are also considering their return on investment. If you can assure that their return on investment is high, many will be interested in franchising your business.

Originality

One of the things that you should consider, even before opening up a business, is whether your company offers something new to your customers. Originality sets you apart from your competitors. Thus, a business concept that is unique is very attractive to potential business partners and something very important if you are thinking about franchising your business.

Once you have ensured that your business satisfies all these qualities, you are already ready to consider franchising your business.

A heavy price tag follows many of the well-liked franchises, making it difficult for countless entrepreneurs wanting to discover the world of growing franchising, as major assets required to spend for such franchises are unavailable to them. The dream of owning a business is becoming further accessible than it was in past with prospects in low startup cost franchise becoming increasingly available.

o Prospective franchisees face the same hurdles that come across all startups while raising capital. A banker won't necessarily see a project as less risky just because it's a franchise.

o When it comes to bargaining for a franchise price, always ask about system innovations, such as 7-Eleven's work-to-own program.

o Check if the franchise you're interested in allows "silent" partnerships, where a person with know-how and another with the money can form partnerships.

o Try out franchisers which team up with local government and redevelopment agencies to open stores in urban inner city markets.

o Low franchising doesn't only mean franchising for less, it also means it's possible to build your very own empire.

o Many franchises can be started for less than $50,000.

o For first-time business owners, even those with prior management or industry experience, the first stop on your capital hunt should be at the franchiser.

o After becoming a franchisee, there's a gap in the time before your business begins growing and another gap before it starts making enough profit to cover your expenses.

o Always plan for the longest time it would take, to reach break even, so you're safe in every way.

o Till the time you grow enough to cover most expenses, you'll have to make provision for additional money to pay your bills. Plan beforehand for this.

Entrepreneur.com has released a list showing the low-cost franchise opportunities, ranked till 100, recently for the year 2007. A less than $50,000 entry option was offered to the entrepreneurs to make to the list.

Among the 100 top business interests, the most surprising fact possibly, was the range it represented. The industries, in which business franchises under $50,000 are available, are the following:

Training
Tech Businesses
Business Services
Retail
Maintenance
Health Care
Recreation
Home-Improvement Products and Services
Automotive
Financial Services
Service Businesses
Person-Care Businesses
Food/Retail Food Sales
Food/Full-Service Restaurant
Food/Quick Service
Children's Products & Services

Along with the estimated cost for a startup and a short product description, a short listing is done here about few of the numerous choices available.

Made in the Shade Blinds

One of the most affordable low startup cost franchise options is 'Made in the Shade Blinds', which needs a capital investment of only $9,500 - $14,500, in total. Franchises are provided with training manual, training and startup inventory in this business, where the idea is to simply cover the windows.

360 Solutions

Would you like to get the support as an owner of a low startup cost franchise because you love the professional management and business growth's world? At 360 Solutions, a franchise with unique opportunity, gives franchise training for providing consultation services about business to medium and small businesses. Training from 360 Solutions include business growth specialist's network, a coaching, "360 University" and marketing action plans, for a total capital investment of $10,000 to $30,000.

SeaMaster Cruises

For starting a low startup cost franchise of cruising business of your own, try SeaMaster Cruises. It is extremely unbelievable to know that the total investment capital is just $9,500 for a SeaMaster Cruises franchise, even though this industry has such incredible potential of income.

CD One Price Cleaners

Incase you want a low startup cost franchise, which is always in demand but basically of low-cost then is there anything better than the franchise of dry-cleaning and laundry? Can anything be better than CD One Price Cleaners? Entrepreneurs are offered the opportunity to begin at no cost, their individual CD One Price Cleaners business by this franchise from Chicago area!

Franchise opportunities of low-cost thrive in different industries, as you are aware by now. So, the variety of franchise opportunities of low-cost, range from luxury cruises to business services and home improvement. You just need a little research and determination and undoubtedly you will succeed in finding for yourself, the correct low startup cost franchise.

If you are looking for a franchise opportunity, the choice is mind boggling. There are literally hundreds if not thousands of different types of franchise available for you to invest in, with the same variety in cost. Each have their own benefits and usually the more you pay the more potential to earn. You obviously want to select a profitable business venture so it is important that you thoroughly research.

The major benefit of starting a franchised business is that the business model has already been proven. As a result, only 5% of franchises fail in a year compared to the 30% to 35% of non-franchise small businesses. This means that franchises are the most successful way to set up your own business.

Selecting the franchise that's right for you.

Types of business franchises.

Have you ever wanted to take control of your life, run your own business from home and spend more time with your family? If you have you've probably already searched on the Internet using keywords like 'Home Business Opportunity' or 'Work From Home', and you've probably also failed miserably only finding scam opportunities and sites that want to take your money for nothing in return.

There are virtually no free opportunities on the Internet anymore. You just can't get something for nothing. You can, though, buy the franchise for an established company and run it how you want to.

Some franchises, like Press-A-Print will offer you full training so that you can truly hit the ground running. Press-A-Print are a printing company and you get full training helping you become fully skilled at printing any image onto any product. Hands on sessions mean you will learn all the tricks of the trade, and the easy to use equipment is, of course, provided. This lucrative opportunity is available for around $20,000.

There are many different types of franchise businesses available including computer service businesses and even car repairs. There are a few examples at the end of this article.

Costs of buying a franchise.

There are other costs associated with buying and running a franchise of your own. There are usually less costs associated with beginning a home business; there are no building costs, no utility costs and no purchase costs but an online home based business isn't for everyone and there are franchises to suit all your needs and requirements, whatever those needs may be.

There are always costs associated with setting up your own business, and owning a franchise is no different. The big difference, of course, is that you are buying a business that already has a proven brand and often popular well known name.

You will have to pay the initial franchise costs as well as the purchase of land or buildings or a security deposit on rented buildings. Often your dream location will need a little work to make it your perfect dream and this will all cost money. If your new franchise business is a produce selling business you may need the initial outlay to purchase goods or raw materials to create the goods. Shipping, sales tax, insurance, labour cost and solicitors and accountants fees may all play a part too and should be budgeted for but don't let this put you off buying a franchise. They can be extremely profitable in the right hands. These costs can combine to total anything from under $50,000 right up to $1,000,000

Examples of franchises available.

V2K has a product that really sets itself apart from the rest of the competition. They specialise in creating window fashions, and their selling point is the virtual shop window. They create a computerized graphic representation of the window so that potential customers can see for themselves exactly what it would look like. Previously one of the main reasons that potential customers wouldn't become paying customers was because they couldn't 'visualize' the end result.

The V2K program means there is no need to purchase premises, and should you wish to do so, a simple storefront would do. No need to purchase any inventory thus saving you a little more money. No need to purchase a special company vehicle. Initial training is included in the start up fee along with ongoing support. The average total investment for this franchise is approximately $50,000.

Looking on the Internet for franchise opportunities you will see plenty of success stories pertaining to 'The Little Gym' franchise. As a stand-alone business, The Little Gym has been in operation since 1976 so you really are buying a proven business. The Little Gym helps children develop motor skills and builds confidence as well as burning energy and keeping fit and healthy.

The average outlay needed to own and run The Little Gym as a franchise is approximately $150,000 but you are not only buying into a proven name you are also helping make a difference to children in your area. A small price to pay.

The key to making a success in a franchised business is to choose a franchise that matches your interest. Is it food, automobiles, fitness perhaps? These days there's a franchise for just about everything. Then, narrow down your options, taking into account the capital you can invest, the track record of the brand and the success stories of other franchisees. Due diligence is the key - thorough research at this stage, is the solid foundation for a successful business.

©2005 Nick Carter

Franchises are one of the fastest-growing types of businesses in the U.S. and can be purchased for as little as a few thousand dollars, to over a million dollars. There are franchises for all kinds of products and services—food, pet grooming, massage services, auto repair, etc. Although exact statistics are hard to find, they also tend to have a higher success rate than independent businesses that are not franchises.

Although franchises tend to have higher success rates, they also have risks , and can fail for any number of reasons like any other business. You must investigate Joe’s Restaurant Franchise just as thoroughly as Joe’s Local Diner before buying it. There are a number of great resources in addition to this article to help you determine if a franchise is the right way for you to go. The U.S. Small Business Administration (SBA) has some excellent resources (www.sba.gov and [http://www.sba.gov/opc/pubs/fran.pdf]), as do several other services like business brokerage websites. Enter “Is Franchising For Me” in any Internet search engine, and you’ll retrieve links to a large number of resources.

What is a Franchise?

The SBA resource I mentioned above offers the following definition for a franchise: A franchise is a legal and commercial relationship between the owner of a trademark, service mark, trade name or advertising symbol and an individual or group seeking the right to use that identification in a business. The franchise governs the method of conducting business between the two parties. Generally, a franchisee sells goods or services supplied by the franchisor or sells goods or services that meet the franchisor's quality standards. As a business model, franchising is essentially a finance vehicle for expansion of the concept. You, the franchisee, finance the start up of the individual franchised unit and pay licensing and royalty fees to the franchisor. This is as opposed to the franchise company bearing the costs of opening its own units (many franchises do have company-owned stores along with franchised stores). The franchise agreement is a contract that governs the manner in which you will do business.

For the fees you pay, the franchisor licenses to you the use of the name of the business and provides other support. Typically there is a business operating system in place, contracts for products or services sold, equipment packages, store design packages, etc. Many franchisors will also arrange for financing relationships. Some franchisors supply the product directly and make money on the sale of that product to you. Such an arrangement usually reduces or eliminates the royalties you would otherwise pay. Typically, you will pay an upfront license fee and then pay ongoing royalties—usually as a percentage of your sales—plus contribute to regional and/or national advertising funds. The franchisor will hopefully provide business expertise as well—operations management, marketing, selecting locations—and should provide training, typically at their corporate headquarters for one to two weeks, plus training and support as you plan and get your franchise unit ready to open.

As a franchisee you own the business, but you are subject to the guidelines of the franchise agreement—products, store décor, uniforms, where product is purchased, certain advertising guidelines, etc. Franchising may be a good option if you prefer a business with existing brand recognition and defined processes you can follow, instead of creating the business from scratch on your own. The service and support offered by a franchisor varies from chain to chain—and may not always live up to your expectations. But the essence of the value of a franchise is the following:

• Existing brand value (unless brand new to the market)
• Existing operating system
• Existing product/service selection
• Supplier relationships (sometimes with favorable terms)
• Training
• Proven locations up and running based on the concept (unless brand new to the market)
• Cooperative advertising and cross-traffic with other franchisees

These things, like all things of value, have to be earned. In the case of a franchise, in addition to all the work you will have to do to be successful in any business, you have to pay the franchisor for the right to use their systems and trademarks. As noted above, this payment typically takes the form of an upfront “franchise license fee” and then a payment of ongoing royalties, plus a contribution to local and/or regional and national advertising funds. Upfront fees can be fairly nominal, like $5,000, or can be in the tens of thousands of dollars. Royalties (charged as a % of your revenue) vary by chain, but are often in the 5% - 8% range. Advertising contributions are also typically charged as a percentage of sales and can vary substantially, but typically range from 1% to 5%, with 3% - 4% being the most common in my experience. In addition to contributions to regional or national advertising funds, you will have to spend additional local marketing dollars to be a success—don’t assume you can rely on your percentage contributions to provide adequate marketing resources to make you a success.

What’s the Right Franchise?

Only you can answer that question, but some things to bear in mind are:

• What are your interests?
• How much capital do you have?
• Do you want to develop multiple units?
• What days or hours do you want to work?
• How easy is it to re-sell your franchise and what are the restrictions or costs from the franchisor?

The financial value a franchise brings to you is an important question to ask yourself. For example, if you are giving up 10% of your revenue in the form of 6% royalties and a 4% advertising co-op fee (which, in theory, comes back to your benefit in the form of marketing resources and advertising), you need to objectively assess what you get back for that 10%. 10% right off the top is a significant amount of money. Will you have a higher probability of success? Will you make more money on the bottom line in spite of the 10% expense? It may be simply that a franchise makes it possible for you to be in business for yourself because of your comfort level with an existing concept, versus trying to create your own. This is why many people go with a franchise, and it’s a good reason, but be sure you understand the financial costs and tradeoffs.

Brand Value

Once you are in the business and have some experience, the primary value (besides any ongoing support and training, which is usually minimal) is the equity of the brand you have franchised. A good franchisee is one who understands that the royalty % he or she is giving up each week is an investment in the brand equity of the chain. A brand that is consistent across its various units will tend to build a more positive reputation and therefore drive more customers—more revenue and more profits—to its franchisees. Think about McDonalds®, considered by many to be the model of a successful franchise system. Imagine if every McDonalds restaurant had a different menu with different products, inconsistent quality, and systems that were changed by every franchisee and therefore different. It would be impossible for the customer to know what to expect before they walked in, i.e., the brand “McDonalds” would have little or no value, sales would slide, stores would fail, and the chain wouldn’t be what it is today (we might have never even heard of it!). By insisting that its franchisees conform to the principles of the brand, i.e., create consistency according to high standards, McDonalds and its franchisees have generally thrived (NOTE: this is not an endorsement of McDonalds, nor is it a prediction of success with a McDonalds franchise. It is only the conclusions of an industry observer and, admittedly, long term customer!). Franchisees that do not conform to the system are destroying their own investment by undermining consistency and therefore the brand. The difficult role of a franchisee is to be independent enough to be capable of owning your own business, but understanding at the same time that you are part of a larger system to which you need to contribute value (i.e., conformity and consistency) in order to be successful yourself.

Master Franchising

I’ll only touch briefly on master franchising, but you may want to follow up in detail on your own, as master franchising can be a very powerful and lucrative business opportunity for the right person. One company that specializes in master franchising is Franchise Growth Systems (FGS), and you can retrieve additional information on master franchising at their website, franchisegrowth.com. Many franchise systems have three overall levels to the organization:

• Corporate Franchisor—this is typically the entity that that developed the concept and from whom you are buying your franchise license.
• Master Franchisee —this is the entity that buys the right to develop franchisees in a given territory, like a state.
• Franchisee—this is the person who buys the franchisee license and operates the actual franchise unit.

There are two major aspects of the master franchisee you need to understand:

• Is it an opportunity that makes sense for you; and
• If you become a franchisee, what is the impact of the master franchisee on your success?

FGS calls master franchising “the best kept secret in franchising,” and it is a pretty unique type of opportunity. Basically, the master buys from the franchisor the rights to develop franchisees in a territory. For each franchise license the Master Franchisee sells, it typically receives one half of the upfront license fee—and that’s not even the good part! It then receives up to half of the ongoing royalties paid by all franchisees operating in its territory. If the master gets a number of units open in his or her territory, 3% (or whatever his or her share of royalties is) of the annual sales in the territory can grow very quickly.

The master typically has to open the first unit in the territory, which increases the capital required. The cost of Master agreements can vary widely, but typically sell for about $.03 to $.10 per head of population in a territory. A state with 3,000,000 people at $.05 per head would require a $150,000 investment. With the first unit to be opened by the master added in, significant capital can be required. If the cost to open a retail store in a retail franchise is $150,000, the total upfront cost to the master is $300,000 in this example. A good Master Franchisee has multiple qualities:

• A strong financial position to invest in the territory and a unit upfront, and wait for the chain to grow over 2 – 5 years.
• Sales/business development skills.
• People management skills.
• The ability to understand and manage the franchisor/franchisee relationship.
• An appreciation for good franchisee operations.
• A commitment to the success of his or her franchisees.

Master franchisees that lack these skills can be very detrimental to a market and actually undermine the success of the market by creating discord among franchisees, and even turning franchisees against their own concept. Talk in depth with existing franchisees about their experiences with their master franchisee. The master role is sometimes called a Development Agent or Area Developer and, while there can be variations, the role is essentially the same. Bottom line: find out who the “middleman” is, and make sure they are a person with good values and a commitment to the success of their franchisees. This can be even more important than the quality of the franchise parent.

A last note: not all franchise systems have the middle role. Some master franchisees also are the ones who open and own all the units (versus recruiting other franchisees to do so).

Choosing A Franchise

If you determine that franchising is a good avenue to business ownership, one of the most important considerations is this: don’t let your excitement about going into business for yourself, or about a certain concept, cloud your judgment or make you skip a proper investigation of the concept. There are thousands of franchises in the United States. Be open minded when first investigating types of franchises, and don’t have tunnel vision about which one you think interests you. Once you narrow down your choices, investigate more than one at least semi-thoroughly.

The franchisor is required by law to provide you with a Uniform Franchise Offering Circular (U.F.O.C.). It should contain a list of existing franchisees. Contact as many as you can! See what their experience has been. If possible, get them to let you review their financial statements and see how they are really doing. If you can’t review actual numbers of other franchisees, don’t rely on the franchisor’s projections. Franchisees typically like to share their success—if they are doing well. Plus, getting a new franchisee in the system is good for the chain, which should motivate them to share. Some will be sensitive about the confidentiality of the information, but if no one will let you see their books, that’s a warning sign that the franchise may not be doing well in your market or overall.

Never get hasty—you will strongly regret it if you do, and end up making a bad choice. Also investigate resells of existing franchise units—they can represent a great opportunity and a smaller financial investment. Franchising can be an excellent avenue to business ownership. Investigate carefully, make objective judgments, and make sure the franchise is delivering value to its franchisees for the royalties and independence they require you to give up—and then get started! Conclusion

There is value in both new and existing franchise concepts. Obviously, the newer a chain is, the more untried and risky it is. Early entrants into one that becomes successful will enjoy higher returns, but don’t deceive yourself about the risk just because it’s a franchise (with either new chains or established ones). Franchise chains can and do fail, just like individual units do.

One of the big benefits a chain offers is brand recognition. The training and systems are of only nominal value once you know what you are doing. You may even find that your abilities outstrip the franchise’s (but don’t forget it’s consistency with your fellow franchisee’s operations that builds brand value over time!). Brand value is a big part of what you are paying for over the life of your relationship with the franchise. So a more established chain will have less risk (both as a chain and an individual unit), and deliver more quickly on brand value due to their market presence.

Your first choice should be to go with a more established chain with proven successes and lots of franchisees that can share their financial results with you before you commit. There are thousands of franchises in the United States. Utilize the Internet and print publications on franchises to review as many as you can while trying to discover the one that seems like the best fit for you.

Imagine that you have operated a successful franchise business for the past several years. Your franchise agreement's term expires in the near future and you are contemplating whether renewing the agreement would be a wise business decision. In the past couple of years it has become all too apparent that you are receiving little, if any, benefit or assistance from your franchisor. Yet, you continue to pay the franchisor thousands of dollars each year in royalties and other fees. You therefore decide that it would make better "business sense" to operate independently after expiration of your franchise term. After all, you are very familiar with the business and have worked extremely hard in developing and establishing a solid client base to enable you to continue running a profitable and prosperous operation.

After your franchise term expires, you continue contacting and providing services for new and former clients - albeit under a different business name. Shortly thereafter you receive a "cease and desist" letter from your former franchisor notifying you that you are in breach of your post-term covenant not to compete and could face court proceedings, including injunctive relief, if you do not immediately turn over all of your client and business records and stop operating from your current location. Effectively, you have been put on notice that you are no longer permitted to operate your business or, in most instances, carryon your livelihood.

This scenario, while overly simplistic in many respects, confronts many franchisees and often times results in dire consequences for their businesses. In law school, my professors taught me that "covenants not to compete" were "unfair restraints on trade" and courts across the country were loath to enforce them. Like many aspects of law school, this perspective lacked the practicalities of real life and failed to account for the complexities involved in analyzing commercial contracts. In the context of franchisor/franchisee relationships, covenants not to compete are routinely enforced to the detriment of the franchisee. While it is true that most courts do not favor restraints on trade, as these contract clauses are sometimes called, many courts have held that so long as the covenant not to compete is reasonable as to the geographical scope, the duration and the activities regulated, it is valid.

What Is A Covenant Not To Compete?

Simply put, a covenant not to compete is an agreement that prohibits an individual from operating or working for a business that is the same as or substantially similar to a business with which the individual was previously affiliated. This agreement is sometimes referred to as a post-term covenant not to compete and is common in employment agreements. In the context of franchises, covenants not to compete are designed, from the franchisor's standpoint, to protect franchisors from unfair competition from departing franchisees. For example, if a departing franchisee utilizes a franchisor's "proprietary" information to operate its own independent business, a court may find that it would be unfair and damaging to the franchisor and its existing franchisees to permit the departing franchisee to continue competing against them in the same market area.

Covenants not to compete can also be in effect during the term of a franchise agreement. These agreements are typically referred to as in-term covenants not to compete. In Keating v. Baskin Robbins, the Eastern District of North Carolina held that the franchisor had properly terminated a franchise agreement because the franchisee operated another ice cream store (in addition to operating the franchise store) within the covenant's restricted geographic area during the term of the franchise agreement. The court stated that so long as the covenant was geographically limited and reasonable, it was valid.

Enforcement Of Covenants Not To Compete

As mentioned above, so long as a covenant not to compete is reasonable as to the geographical scope, the duration and the activities regulated, there is a high probability it will be found valid and enforceable. Nevertheless, states employ differing standards to determine whether a restrictive covenant in a franchise agreement is reasonable. For instance, some states apply the same strict standard that is typically used in determining the reasonableness of an employment agreement's restrictive covenants. Other states apply a more lenient standard akin to the sale of a business. Still other states apply a blending of the elements of both relationships. In contrast, certain post-term franchise covenants not to compete in California are invalid as a matter of statute.

Franchise Covenants Not To Compete In Virginia

In Virginia, it is unsettled whether the stricter standard typically associated with employment contracts would govern, or whether the lessened standard related to the sale of a business would apply. The recent circuit court decision in Brenco Enterprises, Inc. v. Takeout Taxi Franchising Systems, Inc., sheds some light on how Virginia courts might analyze the issues involved in a breach of restrictive covenant case.

In Brenco, various franchisees of Takeout Taxi, a restaurant food delivery service, filed suit against Takeout Taxi alleging various causes of actions, including material breaches of contract. In addition, the franchisees sought a declaration that the post-term covenants not to compete contained in their franchise agreements were unenforceable. The restrictive covenants at issue prohibited the franchisees from directly or indirectly operating, advising or assisting in any business which was the same as or substantially similar to their franchised businesses, within a ten-mile radius of their "designated territories" or any other franchise locations in existence at the date of expiration or termination of their franchise agreements.

In overruling the franchisees' challenges to the covenants not to compete, the court found that the one-year, ten-mile restriction, as well as the activities restricted by the covenant (i.e., restaurant food delivery), were reasonable and enforceable.

In enforcing the covenants not to compete, the court utilized the lessened standard typically reserved for sales of businesses, rather than the heightened standard typically associated with enforcement of an employment covenant not to compete. While the court distinguished both scenarios in the franchise context, the court reasoned, among other things, that unlike an employment relationship, safeguards on competition of former franchisees is necessary to protect the economic interests of existing and future franchisees. Such protections, the court noted, are generally not as important to former co-workers of an ex-employee.

Despite the court's finding of reasonableness, the franchisees also attempted to attack the covenants arguing that the covenant was greater than necessary to protect Takeout Taxi's business interests in light of, among other factors, Takeout Taxi's decision to cease selling franchises. Nevertheless, the court found that despite Takeout Taxi's decision to stop selling franchises, it still had a "legitimate protectable business interest" and that the franchisees would be bound by the bargain of their agreement.

Needless to say, franchisees trying to escape the confines of a previously agreed to covenant not to compete under Virginia law may find themselves at the mercy of a court, as the franchisees did in the Brenco case. Not all situations are alike, however, and a franchisee looking to exit a franchise system and continue his or her livelihood in the face of a covenant not to compete should consider all viable options and attempt to resolve the matter before it goes to court.

What Can You Do?

In almost every franchise case where a franchisor is seeking to prohibit a departed franchisee from competing with the franchise system through enforcement of a post-term covenant not to compete, it is the burden of the franchisor to prove, among other things, that it will be "irreparably harmed" by the continuation of the departed franchisee's business. While most franchisors in covenant not to compete cases tend to reflexively repeat that they are being "irreparably harmed" by any actions taken by the franchisee after expiration or termination of the franchise agreement, the reality may be that there is very little impact, if any, on the franchisor or other franchisees.

Going back to our hypothetical above, in the event you are forced to defend against a franchisor's claim or suit for injunctive relief, you as the franchisee should consider, among many other factors, the relative number of competing businesses in your market area or the area defined by your covenant. If there are hundreds of competitors outside of your franchise vying for clients in your market area, the franchisor would have a harder time arguing that it would be irreparably harmed by one franchisee leaving the system. On the flip-side, you would arguably suffer more harm if the covenant was enforced against you and your livelihood was destroyed.

You should investigate the history of the franchise and whether similarly situated franchisees were forced out of business by hard-line enforcement tactics by the franchisor. If the franchisor in the past rarely sought enforcement of covenants not to compete against other franchisees, or accepted cash settlements in exchange for a release of the franchisee's obligations, such factors could go a long way in attacking the necessity of the covenant's protection for the franchisor's business interests. Remember, covenants not to compete are arguably intended to be a means to protect the franchisor from unfair competition - not a tool to extort gargantuan sums of money out of hard-working businessmen and women.

Make Informed Decisions

Signing a franchise agreement that contains a covenant not to compete can potentially harm your business and restrict your ability to carryon your livelihood after your franchise relationship has ended. If you are an individual that has signed a franchise agreement with restrictive covenants, or are considering signing one, you should always review the contract language with an experienced franchise attorney and analyze it in terms of the statutory and controlling case law in the state where your franchise is located, as well as in the state designated in the franchise agreement for choice of law purposes. This will enable you to make the most informed business decision in order to continue maximizing your business interests.

Franchising can be a great option for you to go into business for yourself. One of the best things about franchising is utilizing a proven system that has demonstrated success. There are several Pro's to franchising that are fairly self evident. Before you plunk down a large franchise fee you do need to consider some of the drawbacks to doing so.

1. Be prepared for the expense. Franchising can provide tremendous financial rewards. The up front costs of a quality and in demand franchise can be quite expensive. In today's market, most turn key franchises will require a minimum of $50,000 in the form of a franchise fee, start up capital requirements of at least $25,000 and usually it is advisable to have a minimum of 6 months worth of your home expenses saved to avoid having to take any money out of the business until well after initial start up.
2. Be prepared for the work/hours required. When you go into business for yourself you are going to find that a 40 hour work week is something of the past. Most new franchise owners find that a more typical work week is around 80%2Bhours per week. This is especially the case if your new franchise is in the retail arena. When you purchase your franchise you are really buying yourself an 80%2B hour a week job. Never forget that if an new employee decides not to show up for work 10 minutes before their shift that you have to cover/fill in for them until you can find a replacement.
3. Speaking of employees. Employees are going to be an essential part of your success. Employees are also going to consume a large amount of the 80%2B hours you spend each week. From scheduling, payroll, management, training and development to a myriad of other issues, employees will be one of your greatest challenges. If you come from a supervisory background or management background you will certainly be able to bring some skills to your new business that will serve you well. If however your past work experience provided little time spent directing and supervising others, you may want and need to consider hiring a manager right out of the gate. The learning curve for dealing with and working with employees can not be cut short. You have to spend the time learning how to deal with all of the above issues while also simultaneously running a successful business.
4. Be prepared for the unexpected. There has never been nor will there ever be a business that does not have to travel over the inevitable speed bump. There will be times when suppliers and vendors are demanding their payments all at the same time. There will be times when your unemployment taxes, sales tax, business and personal income tax all seem to be due at the same time. You need to prepare yourself financially for these speed bumps and know they are a part of business. This will also be the time when you may have to forego your own paycheck until the cash flow gets back on track. If your business and your cash flow is in any way seasonal, you have to be able to manage your cash flow well. Seek professional advice and assistance as the cost will be far less than learning the hard way!
5. Be prepared for the social consequences. When you own and operate your own franchise, you will soon find that your friends and family no longer see you much. It will be imperative to make the time that you do have quality time with your family and friends. You will also find that some people will change their opinion of you. Now that you are a business owner some people will believe that you are now wealthy and will either try to take advantage of you or will snub you in some subtle ways. This of course does not always happen, but be prepared none-the-less.
6. Be prepared to be more of a follower than a leader. When you purchase a franchise, one of the things you will be required to do is to follow a strict system. For instance, a food franchise will provide you with little, if any, flexibility in varying your menu. You will be required to provide a system exactly like all other franchises with your same brand name. If you are a person that is truly an entrepreneur, you may find this to be a system that will box you in. New ideas and cutting edge marketing are something you will not be able to do.
7. Be prepared to pay a lot in Royalties. Royalty fees are a part of every legitimate franchise. Every single dollar that flows into your business will be subject to a percentage royalty fee. Most franchises are in the 3-10% range. This of course comes right off the top from your gross sales. This amount of money can be quite significant over the term of a franchise agreement. One million dollars in annual sales for 15 years at a 5% royalty fee will equate to $750,000 right off of your bottom line.
8. Franchise Agreement and Franchise Term. The franchise agreement will spell out exactly how many years the franchise will cover. Most franchises will be a 10-15 year agreement which will require your royalties and complete following of their system. The downside to this is that you will be at the mercy of the franchisor at the end of the term and your new royalty fees could certainly be increased. It is very rare that the fees go down. Even if you elect to end the franchise relationship, there is no guarantee that you will be able to provide substantially the same products/services to your now loyal customer base without the franchise. The company now also has a right (and usually will exercise this right) to place a new franchise in your same location. I have even seen them open a new business within a block of their former franchisee.
9. Purchasing or Renting Real Estate. You will have to decide whether to purchase/build an existing facility or whether or not you should rent a location. In either situation you will have to make sure that your mortgages or leases line up or will line up with the expiration of your franchise agreement/term. With only 15 years, purchasing may not be the best option as you will want to have a 20%2B year term if possible for your business property mortgage at your bank. High monthly payments early on will not be desired to maximize your cash flow during the first few years. Leasing a location normally is in 5 year increments and the renewal rate may be quite high and if your franchise agreement covers 15 years, you could be through 3 leases by then and may have just as well bought your location.
10. Location location location. The final consideration you need to consider is that your location that is great today may not be great in 10 years. If you open a sandwich shop across from a large industrial plant, you may have the perfect location. What if the business goes under or has massive layoffs? Now your location is completely wrong. You have to break leases/sell property (both of which will now cost you a lot of money), find a new location and in reality start all over again. If the franchisor has several other franchises in the area, you may be relegated to a less than prime location with which to rebuild.

My goal is certainly to not dissuade you from purchasing a franchise. The franchise model is one of the proven ways to own and operate a successful business and to help ensure it is open five years from now. The systems do work as long as you work the system! These 10 areas of consideration really should be thought about and evaluated before you make your final decision to part with all of your hard earned money! If you can live with these areas of concern and can address them with confidence, certainly proceed ahead. Success is 90%%2B your attitude and 10% your system.