Franchising

The UFOC, (now, more commonly referred to as the Franchise Disclosure Document, or FDD), is by far the most vital piece of information that any potential franchisee needs to carefully investigate when considering purchasing a franchise. Franchises are regulated by law, and the FTC (Federal Trade Commission) requires all franchisors to provide a UFOC. Basically, it is the "blueprint" of the franchisor, and this document must be provided to any prospective franchisee so he/she can make an informed decision.

Some key items included in the UFOC are the investment required, the franchisor's management staff and experience, territory rights you are given, and your responsibilities as a franchisee. The initial portion of the document encourages the potential franchisee to read the UFOC in its entirety, and suggests reviewing it with an attorney or other qualified advisor.

The franchise agreement details the rights of both the franchisor and the franchisee and tells how the franchisor's trademark can be used, the length of time of the agreement, advertising, payments for the purchase of the franchise, renewal fees and specific terms, and what specific supplies can be purchased from the franchisor. This agreement also outlines the legal requirement of the termination of the agreement.

In addition to the legal agreements involved in buying a franchise, keep in mind the major reason for buying a franchise is that you agree to follow a proven, successful operating system. That being said, you need to consider some of the restrictions in the actual day to day management of a franchise business. While a certain amount of creativity is welcome, you need to feel comfortable running your business with a set of rules that are primarily defined by the franchisor.

I will now touch briefly on each of the 23 standard items contained in the UFOC (FDD).

1. The Franchisor, Its Predecessors And Affiliates. The Franchisor describes the company and the franchise. Here, you'll discover the franchisor name, affiliates, address, type of franchise being offered, and prior business experience of the franchisor, its predecessor, and its affiliates.

2. Business Experience. The prospective franchisee receives professional and biographical information about those individuals having significant responsibilities within the operation of the business, such as the franchisor, its officers, executives and directors. Also included here are franchise brokers and consultants.

3. Litigation. Disclosed here will be any relevant current and past criminal and civil litigation involved in by the franchisor and its management.

4. Bankruptcy. If the franchisor or a member of its management has ever gone through bankruptcy proceedings within the past 15 years, it will be disclosed here.

5. Initial Franchise Fee. Here, you'll find information about the initial fees and any other payments, including terms, made to the franchisor upon the execution of a franchise agreement.

6. Other Fees. Item 6 provides details of all recurring fees that the franchisee must make to the franchisor, including: realities, training fees, advertising, insurance expenses, audit costs, renewals, leases, and any other fees for services provided by the franchisor.

7. Initial Investment. Listed in a table format, included are all the expenditures the franchisee is required to make, usually with a high and low range given, for specifics such as equipment, inventory, fixtures, construction, real estate, etc. Also disclosed here are payment details, such as who the payee is, if it is refundable, and whether it is financed.

8. Restrictions On Sources Of Products And Services. Any restrictions or requirements on what the franchisee can buy or lease for the business and where they can be purchased will be specified here. This would include products, services, insurance, fixtures, and equipment.

9. Franchisee's Obligations. Here, a reference table indicates where, in the franchise agreement, franchisees can locate specific obligations that are agreed upon. The list tells of the franchisees obligation, where it is found in the UFOC, and where it is found in the franchise agreement. At times, individual franchisees obligations may vary.

10. Financing. If the franchisor provides financing assistance to their franchisees, the terms and conditions of the financing arrangements offered directly or indirectly would be detailed here.

11. Franchiser's Obligations. By investing in a franchise, you receive specific services from the franchisor. Item 11 spells out these services, which may include site selection, training, advertising, and market research.

12. Territory. If the franchisee has been provided specific territory rights, they will be disclosed in this section.

13. Trademarks. Here, the franchisor must provide the franchisee with information about the company's trademarks, trade names, and service marks that will be used. Also, you'll find a list of states and countries where they are registered and any limitations that the franchisee must abide by in the use of them.

14. Patents, Copyrights and Proprietary Information. This section provides the franchisee with information regarding the patents and copyrights the franchisor may have, as well as any confidential information, and how it may be used by the franchisee.

15. Obligation To Participate In The Actual Operation Of The Franchise Business. Depending on the franchise, the owner may be required to devote full time to the operation of the business. Others allow absentee ownership, or a manager that is trained by the franchisor may operate the business. The terms and conditions of overall participation are disclosed here.

16. Restrictions On What The Franchisee May Sell. This section discloses any restrictions on the goods and services that the franchisee may offer its customers.

17. Renewal, Termination, Transfer And Dispute Resolution. This section discusses very in-depth the overall terms of the agreement. It discloses length of the term of the agreement, reasons the franchisor or franchisee may terminate the agreement, any obligations of either party after the agreement, whether either party may transfer the agreement to another person, dispute resolution, and restrictions on competition, to name a few.

18. Public Figures. If the franchisor has an endorsement agreement with a celebrity or other public figure, the amount he/she is paid and whether or not he/she has a role in the actual management of the franchise must be disclosed here.

19. Earnings Claims. Many franchisors make a claim of actual or potential sales, income, or profit for a franchised location. If they do, it's disclosed here. Obviously, this is a very important section to a potential franchisee.

20. List Of Outlets. The franchisor provides information regarding the number of franchised units and company-owned locations, the names, addresses, and telephone numbers of franchisees, the number of franchises transferred or terminated, non-renewed units reacquired by the franchisor, and information on non-renewed or terminated units and the causes.

21. Financial Statements. Disclosure of the franchisor's financial statements (audited) for the past three years is required.

22. Contracts. Here, the franchisee is provided with a list of license agreements that he/she is required to sign and attach to the UFOC.

23. Receipt. The franchisee is required to sign a receipt that he/she has received the UFOC.

In addition to the UFOC, it is strongly recommended that potential franchisees contact several existing franchisees with a specific list of questions to receive answers to, which I will discuss in detail in a future article.

In summary, by thoroughly reviewing the franchisor's UFOC, the potential franchisee is provided with a tremendous amount of information allowing him/her to make a calculated, educated decision as to whether that franchise is the best fit. Most franchises are successful as they have a proven track record and usually have immediate cash flow. Assuming you can follow the franchise rules, you will most likely enjoy success.

Franchising has been another option for our career when we think about "be your own boss". I have been thinking of why people want to go to franchising model of business.

Surely, the Franchising Company would put up a good frontage to attract potential franchisee.

So the challenge to me is how do I know I have a profitable franchise with reasonable financial without burning a big hole? And at the same time, for Franchising to have a higher success rate, the Franchise system would have a proven track record. Nonetheless, my friend still requested me to engage a Franchising Consultant to give his expertise on the Franchising model.

From the search for Franchising consultants, I identified 3 Franchising consultants. The first Franchising consultant highlighted to me the key success areas like the ability of Franchisor to support when needed, availability of Franchisor expertise and how their model fit into the local situation.

The second Franchising consultant shared his view on the criteria in selecting the Franchising company for its financial strength, his local knowledge and chance of success. The third Franchising consultant instead asked me why do I want a Franchising model. I decided to probe further by telling him that Franchising help me to have a "Quick Jump Start" and also assist me to select a suitable location especially for food kiosk.

From the above, I manage to size up that Franchising consultants have reasonable knowledge about the Franchising model as well as dos and don't for Franchising model.

I would like to share what I had gathered about engaging Franchising consultant:

1. want him or her to play an independent role and give his assessment on the strength and opportunity that Franchisor profiles
2. has the ability to negotiate favorable terms when a suitable Franchisor being sourced
3. involve him recruit the right people to run the Franchising business

However, if I am from the Food and Beverage industry, I would have the fundamental knowledge in this industry. The short coming is my negotiation techniques for better deal. In any business setting, we must have the basic key success indicators.

From what I understand, Franchisor - franchisee relationship is just like having the courtship and subsequently getting married as partners. Know the Franchisor's work style and his team would be the first step for the success of getting a Franchise.

The decision to purchase a franchise can be a very complex one.  You need to make an informed decision, based on an extensive fact-gathering process, to identify the ideal franchise for you.  One of the final steps of this process is to attend a Discovery Day.  

Franchisors hold Discovery Days, typically on a monthly basis, for potential franchisees to give them an opportunity to find out more about the franchise in an informal, no-obligation setting. During a Discovery Day, which is usually held at the corporate headquarters, the company defines the overall operation of the business, the product or service it provides, the training and support systems, and the financial investment required.

Despite the assumption that a Discovery Day is solely for the benefit of the potential franchisee, the franchise company itself also uses the occasion to develop first impressions of prospective franchisees and to informally assess their suitability for the business. So, it is the day for the management team and the franchise candidate to get to know each other on a deeper level than phone and email to decide if this is a good match for both parties. 

Also, it seems that the general consensus is that franchises are "purchased".  The vast majority of the candidates I consult with tell me that they wish to "buy" a franchise.  While technically you do have to pay the franchisor to become a franchisee, franchises are not "bought".  They are awarded to the individuals that franchise companies deem the best fit for growing their business.  Because of this, companies tend to be extremely thorough when investigating those who wish to represent their business.  There are many reasons that they need to be so selective and picky.  

The franchisor will be generating income (royalties) based on the income of the franchisee.  Therefore, the franchisor has a vested interest in the level of success of its franchisees.   

In addition, the overall reputation of the franchisor is at stake.  If a customer of one of its franchisees has a bad experience, it is reflected on the entire corporation, including all franchisees.  Word of mouth will spread unpleasant news at warp speed, and people will assume that the entire franchise is bad if a negative experience is had at one unit.    

Item 20 of the UFOC requires the corporation to list any franchises that have closed (failed).  Therefore, a company with any history of failed franchises will most certainly be unattractive to a potential new franchisee. 

The Discovery Day has several benefits to the prospective franchisee as well.  Discovery Day is a great opportunity to meet staff members of the corporate franchise team and, in some cases, existing franchisees in the network. You'll have a chance to ask any lingering questions you still may have in a casual atmosphere.  Keep in mind that you do want to sell yourself, and first impressions are vital, so present yourself as someone who will be a strong asset to the franchise.  Dress professionally, be confident, social, happy - excited about the opportunity!   

Demonstrate your knowledge of the industry and of the franchise. By now, you have done substantial research on the opportunity, so you should feel comfortable engaging in conversation relative to the franchise.  Franchisors will respect how educated you are about their business.   

You'll also want to convince them that you can follow their system.  They're not looking for someone who is entrepreneurial or super creative.  If you are someone who is constantly coming up with what you think are creative, brilliant ideas, you are probably not right for franchising.  It is imperative that you can follow a proven system.    

Lastly, if the franchiser doesn't already know, you must show that you are financially qualified.  You should already know, prior to Discovery Day, how you are going to finance the franchise and be able to demonstrate that to the franchiser.  He needs to know that you are more than capable of handling the investment, and will also have sufficient living expenses as you begin growing your business.  

Remember, you need to be adequately prepared for your Discovery Day. This means not only financially, but socially, as well as extremely knowledgeable of the company, product, and/or service. Finally, make this a fun experience. With proper preparation, you may very well end your Discovery Day as a new franchisee!  

Get your Free Franchise Consultation.  The Franchising Authority will help you find your perfect franchise.

You will find a decent number of franchises accessible which let you be van centered. This typically involves working from home with the mobility of a van or related transport which allows you to visit purchasers.

The main advantage of van franchise opportunities are that they largely permit you to be based from a domestic residence and don't need an independent office or trade premises. This obviously keeps running costs down whilst permitting you the professional image of arriving at the clients site in van that could be kitted out in your franchise brands' corporate colors.

You will discover many different types of van franchise, for instance:-

Automotive Renovation and Repair Franchises

Automotive franchise businesses generally cover on-site, minor repairs to cars such as dent restoration, windscreen repair and such like. A van is utilised to move yourself and the necessary equipment to the purchasers location as in a house or office to carry out repairs on-site.

Domestic Renovation Franchises

Domestic Repair Services comprise everything from handy repairs, plumbing, electric work, building work as well as home and garden renovation/maintenance. Any gear used for the duty are normally transported to the customers address in your van.

Delivery Franchise businesses

These tend to be business-to-business types of franchise which can be supply of mass consumables or commercial merchandise to business customers. They usually entail moving of the products inside a van for distribution to purchasers commercial premises.

These are just a number of the various van franchises for sale to be had. For those who have decided a van franchise system could suit them most suitably then start by browsing the choices available in the market. From this you'll be able to narrow it down to a couple of options that suit you the best to explore further.

When researching a franchise, its imperative that you investigate thoroughly. Take time to examine all the choices offered either by attending a franchise exhibition, reading franchise business media or browsing franchise blogs online.

When you've several franchise businesses of benefit, plan to meet the business owners to acquire a feel for their operation and as well request a listing of their franchisees. Drop a line to the franchisees and use them as references. The franchisees are the people presently doing what you may be doing should you took on that exact franchise so they are surely a really valuable source of information and attitude on how the franchise opportunity performs.

Unless you have the finance available to invest, you'll most likely also need to examine financing choices. Many of the high street banks have committed franchise sections which can guidance on funding for your franchise opportunity purchase.

Whatever option you go for, remember that a franchise business is a commercial investment decision. To receive a return you'll need to be enthusiastic and disciplined to work hard. Only then will you accomplish success.

When looking for a potential business or franchise there may be many questions that one asks themselves, we are going to look over one of the major mistakes that has been attributed to the franchise ideas not working and the potential owner losing out on their investment.

To make sure that the franchise is a success the franchise companies should make it as easy as possible for the potential franchisor to understand and avoid pitfalls when starting up their franchise ideas. All franchise companies will have a disclosure that details their responsibilities and the potential franchisors responsibilities, in this document there will be a part concerning 'past, current and future franchises'. This section should detail information about the present franchises that are currently operating under the franchise companies name.

It is vital that these franchises are discussed and gone through in detail. You must bring up any concerns that you may have with the current franchise ideas and what is currently happening with the franchises that are in operation. It will be beneficial if the franchisor gives you a tour of a current franchise that is operating, you should ask to see more than one franchise so that you can get a better idea of how each one works in different locations. Take notes when you are given this tour so that you can get back to the franchisor with any concerns you may have, you might ask questions on the tour but questions like 'how much money do you earn?' might be better directed straight at the franchisor instead of at the franchisee on the tour to avoid embarrassment.

When taking these tours or asking other franchise companies questions you must take into account if these franchisees are benefiting by helping solicit new franchisees. Many franchise companies give out extra incentives, sometimes cash, to franchisees to sell the franchise ideas to other potential candidates. It is best to ask them directly if they are benefiting from giving you these answers and information.

Other franchises under the same name must be contacted as well. These franchises that have not been used to solicit the franchise will be more beneficial as they will give you a clearer idea of the company and how they operate. Under the disclosure document there should be a list of these franchise companies. You must contact these companies as these will be an unbiased source of information, you will be able to get information that is not in the disclosure about the franchise through the questions you ask.

Ask questions such as, 'why this location?', 'have you been in business a long time?', 'are you doing well or not?', in regards to the last question find out why they are doing well, what strategies they have put in place and what sort of turnover they are achieving. You should also determine reasons why they are not doing well, question the franchise influences on the new franchisee, has there been enough support and has the franchisor done everything they said they would do?

Make sure you visit and talk to other franchise companies before investing in the franchise, not finding out this information is a major mistake that some potential franchisees make, don't let it be you.

It's clear that franchising can be a good way to start up a business, nevertheless, you will discover online a lot of negative reviews concerning people losing capital, their franchise business failing, etc. Of course there are no guarantees but with a little wise thought and examination, it's possible to minimise the possibility of disappointment as much as possible and do your best to ensure your franchise opportunity is a winner. There seem to be a number of commonly recurring issues so here's a handful of ways to avoid them:

Mistake 1: Not checking the genuineness of the Franchise operator

I've come across comments online where it sounds as if people have thrown finance at a downright rip-off! Do not forget that you'll likely be giving a substantial amount of money to the franchise operator as start-up 'franchise fee'. In addition to this, you'll be building a long term business rapport with them so its vital that you know as much about their background and history as possible. On the internet is really a good way to search for the company and explore its background. Its also worth investigating the Directors history to find out what other businesses they have been, or still are, involved in. Other good sources of company information might be the Companies House website, opening talks with the franchise sections of the main high street banks and also specialist franchise business consultants who might be capable to give you some industry opinion on any franchise business you happen to be considering.

Mistake 2: Not talking to those that are already performing the job!

If you're buying an item then the most persuasive reviews and recommendations come from friends and others who generously disclose their judgment on it. From this you can make a well educated decision of whether you might buy a product. The same is right for a franchise business. Make sure you get a listing of some franchisees from the franchise operator as 'references'. Get in touch with them and, if possible, plan to get together with them to get a feel for what you'd be doing. They're likely to be your greatest source of response on how encouraging the franchise operator is and how well the franchise system works for them on a each day basis.

Mistake 3: Assuming that a Franchise opportunity carries a warranty!

There can be a sense that since a business is a 'franchise' it's somehow a certain winner. The reality is that you will be the person who decides whether your franchise succeeds or fails. A franchise business is simply a business system that has been proven to generate a profit when it is 'worked' correctly. The important thing here is the word 'worked'. Like any other business, a franchise calls for a lot of hard work and dedication. Ensure you have the complete backup and encouragement of all your family since it requires a lot of time to develop a successful business.

With China's opening of its market and recent succession into the WTO, it has undergone rapid development in the past two decades. Due in part to such growth and in combination with its massive 1.3 billion population (330 million in its middle-class alone as compared to America's total population of 300 million), it represents the world's largest yet 'untapped' consumer market. For many franchisers seeking to market reliability associated with brand recognition and systematic organizational structures to the oftentimes chaotic and fragmented consumer sector (particularly the food and personal service industries), China will be both the largest yet most challenging opportunity in the 21st century.

Fortunately for both consumers and those in the franchising industry, 2007 arguably brought about the largest liberalization of this sector since the "Opening Up" reforms of 1979. That being said, however, foreign franchisers have, in the past, seen their share of successes and failures, many of whom have 'stuck it out' throughout China's market changes to become a consumer household name, such as McDonald's, KFC and Pizza Hut.

I. Development of the franchise market in China

In 1997, China's Ministry of Internal Trade promulgated the Administration of Commercial Franchise Procedures (Trial Implementation and hereinafter "Franchise Procedures") representing the first set of regulations directed at specifically addressing issues pertaining to the franchise sector. The Franchise Procedures introduced two types of franchises: i) direct franchising and ii) sub-franchising. The Franchise Procedures provided for the basic structure of current franchising laws, which requires the disclosure of material information to prospective franchisees and includes the following: basic information about the franchiser; operational results of the franchiser; financial results of its franchise outlets; fees and payment obligations; and, terms and conditions for goods and services provided to franchisees. The Franchise Procedures also established the quasi-governmental China Chain Store and Franchise Association ("CCFA"). (Note that the Franchise Procedures were interpreted as not being applicable to cross-border franchise operations.)

In 2004, as part of China's accession into the World Trade Organization (WTO) and commitment to the principles therein, the Ministry of Commerce issued the Measures for the Administration of Franchise Operations ("Franchise Measures") effective February 1st, 2005. The Franchise Measures were promulgated shortly after the Measures on the Administration of Foreign Investment in the Commercial Sector, which liberalized foreign investment in the retail and wholesale distribution industry. Unlike the Franchise Procedures, the Franchise Measures not only permit foreign investment in the franchising sector but also contain an entire chapter drafted exclusively for this purpose.

Much like the Franchise Procedures, the Franchise Measures focused largely on franchiser disclosure, but also included the "two-plus-one" requirement, which mandated franchisers to operate two company-owned stores in China prior to commencing franchising activities. Obviously, this has prevented many start-up franchisers from immediately commencing operations in China and was a disincentive for market entry. Moreover, the promulgation of the Franchise Measures and the requirement that all franchising operations be conducted only by PRC entities has effectively removed the alternative measures being used by foreign franchisers for many years, including licensing arrangements and international franchising agreements.

There have, however, been recent modifications to the franchising framework with the promulgation of a number of new laws in 2007 which will be further discussed below.

II. Current Legal Framework and Franchising Structures in China

In May of 2007, MOFCOM replaced the Franchise Measures (2005) with the Regulations on the Administration of Commercial Franchises ("Franchise Regulations"). The Franchise Regulations, together with the MOFCOM-issued Administrative Measures for the Information Disclosure of Commercial Franchises ("Information Disclosure Measures") and the Administrative Measures for Archival Filing of Commercial Franchises ("Archival Filing Measures") currently govern franchising structures in China and set out the following requirements:

1. Definition and Applicability Scope of Commercial Franchises

Article 2 of the Franchise Regulations states that the regulations are applicable to all investors engaged in commercial franchise operations in China

"Commercial Franchise" is defined in the Franchise Regulations as "business activities whereby a franchiser, through execution of agreements, allows a franchisee to use operational resources, such as a trademark, logo, patent, know-how and others which are owned by the franchisor [refers to legal (not natural) persons], and the franchisee conducts business under the unified business model in accordance with the provisions of the contract and pays franchise fees to the franchiser.

2. Qualifications and the Two-Plus-One Rule

Franchisers must own a well-developed business model, and be capable of providing continued operational management, technical support, business training and other services to the franchisee. Additionally, franchisers must own at least two company-owned stores for a period of at least one year . Noticeably missing is the phrase "in China", which allows for new foreign entrants to immediately commence franchising activities in China.

3. Filing Requirements

Within fifteen days from executing the first franchise agreement, the franchiser must file with MOFCOM , specifically i) if the franchising activities take place within a single province, autonomous region or municipality under the central government (Beijing, Shanghai, and other major cities), then with the MOFCOM of that province, autonomous region or municipality under the central government; or ii) if franchising activities take place in more than one province, autonomous region or municipality, then at the national level MOFCOM.

Thereafter, the relevant MOFCOM will have ten days to properly file all completed filings , and publish them on its website. However, it is necessary to note that the franchiser must, within 30 days of any change potentially impacting the filing, apply for an alteration of its filings.

Franchisers must file the following:

1. Basic information about the commercial franchise;

2. Distribution information of franchised stores in China;

3. Franchiser's Commercial Prospectus;

4. Copy of business license or enterprise registration;

5. Copies of certificates of trademarks, patents and other business resources related to franchise activities;

6. Sample franchise agreement;

7. Franchise operational manuals;

8. Marketing plan;

9. Written undertaking evidencing franchiser's complies with the Qualifications and the Two-Plus-One Rule;

10. Certificate evidencing compliance with the Two-Plus-One rule, issued by the city level in China and, for franchisers using space outside of China, business certificates translated, notarized and authenticated by the Chinese embassy; and,

11. Other documents as required.

Completed filings may be canceled in the event of any of the following occurrences:

1. Franchiser's business license was canceled by the competent registration authority because of illegal operations;

2. MOFCOM receives a court order regarding the cancellation of the filing due to illegal operations of the franchiser;

3. Franchiser was discovered to have failed to disclose material information or provided false information; and,

4. Franchiser itself cancels the filing.

4. Disclosure of Information.

The following materials must be provided to the prospective franchisee a minimum of thirty days prior to the signing of the Franchise Agreement :

1. Basic information on the franchiser and franchise activities:

a. Franchiser's name, address, contacts, legal representative, general manager, registered capital, scope of business, and the number of regular chains including their addresses and phone numbers;

b. A brief introduction to the commercial franchise activities of the franchiser;

c. Basic information on the archival filing of the franchiser;

d. If the franchiser's associated company provides products and services to the franchisee, the associated company's basic information must also be disclosed; and,

e. Information on any bankruptcy and/or application for bankruptcy of the franchiser or of its associated company in the preceding five years.

2. Basic information on the business resources of the franchiser

a. Information available on registered trademarks, company logos, patents, proprietary technologies, and business methods, etc;

b. If the owner of any of the above-mentioned business resources is the associated company of the franchiser, then the basic information of the associated company must also be disclosed (the franchiser is also required to explain how to manage the franchise system upon termination fo the license contract); and,

c. Information on the business resources of the franchiser (or its associated company) in relation to litigation or arbitration.

3. Basic information on franchise expenses:

a. If the type, amount, criteria and payment method of fees collected by the franchiser or on behalf of a third party cannot be disclosed, then the franchiser must explain the reason for the non-disclosure; if the fee collection standards are inconsistent, then the franchiser is required to disclose both the maximum and minimum standards, and explain the reason thereto;

b. The collection thereof, return conditions, return time, and return on investment; and,

c. If the franchisee is required to pay a fee before the Franchise Agreement is concluded, then the franchiser must explain in writing the use of the fee and the conditions and method of return.

4. Information on the prices and conditions of the products, services and equipment provided to the franchisee.

a. Whether the franchisee must purchase products, services or equipment from the franchiser (or its associated company), including the prices and conditions thereof;

b. Whether the franchisee must purchase products, services or equipment from the suppliers appointed or approved by the franchiser; and,

c. Whether the franchisee has the discretion to choose its own suppliers and the standards for the selection of its suppliers.

5. Information on the continuous provision of services to the franchisee.

a. Detailed content, manner of provision and implementation plans for professional training, including the training location, approach and duration; and,

b. Details regarding technical support and a catalog of the operation manual of the franchise including the number of pages therein.

6. Methods and content of guidance and supervision over the franchise activities of the franchisee:

a. The franchiser's methods and content of guidance and supervision over the franchise activities of the franchisee, the franchisees obligations and consequences for failing to fulfill them.

b. Whether the franchiser is jointly liable with the franchisee for complaints by and compensation to consumers, and how to share such liability.

7. Information on the investment budget of the franchise:

a. The expenditure for the investment budget may include the following: initial fee; training fee; real estate and decoration fee, procurement fee for equipment, office supplies, furniture, etc; initial inventory; water, electricity and gas fees; fees needed to obtain licenses and other governmental approvals; and working capital; and,

b. The statistical source and estimation basis for the above-mentioned fees.

8. Information on franchisees within China:

a. Information on the present and estimated number of franchisees, geographical distribution, scope of license, and as to whether or not they are subject to an exclusive regional license (if so, details of the scope thereof must also be explained)

b. Information on the evaluation of the performance of the franchisee, the actual or estimated average sales volume, costs, gross and net profits of the franchisee, the source of the above-mentioned information duration of and franchise networks involved (if the information is speculative, then the franchiser shall explain the basis for its speculation, and specify that the actual performance of the franchisee may differ from its speculation.

9. Abstracts of the franchiser's financial and accounting reports and of the audit reports in the last two years audited by the accounting or auditing firms.

10. Information on any major litigation or arbitration involving any franchises of the franchiser in the last five years.

a. Major litigation or arbitration refers to litigation and arbitration involving litigation fees of more than RMB 500, 000; and,

b. Basic information as to the location of the litigation or arbitration and the judgment or award must also be disclosed.

11. Information on any record of major illegal operations of the franchiser and its legal representative.

a. Where either the franchiser or its legal representative has been imposed with a fine, by the competent administrative law enforcement authorities, exceeding not less than 300, 000 but more than 500, 000; and,

b. Where the franchiser and its legal representative have been subject to criminal penalization.

12. Franchise Contract

a. Sample franchise contract; and

b. If the franchiser requires its franchisee to sign with the franchiser (or its associated company), other franchise contracts (sample contract shall be provided at the time of contracting).

Note that where the franchiser is found to have concealed or provided false information, the franchisee may rescind the Franchise Agreement.

5. Franchise Agreement

Although franchise contracts are in practice comprehensive and lengthy, the Franchise Regulations require certain clauses be provided in the relevant franchise agreement:

1. basic information on the franchiser and franchisee;

2. content and term of the franchise;

3. types, amounts and payments of franchise fees;

4. specific content and manner of provision of operational guidance, business training, technical and other services to franchisee;

5. quality standards, quality control measures for the provision of products and services by franchise operations;

6. promotions and advertisements of products and services of franchise operations;

7. arrangements for consumer rights, and assignment of liability in franchise operations;

8. amendment, rescission and termination of the franchise agreement;

9. liability for breach;

10. dispute resolution; and

11. other matters as agreed upon between the franchiser and franchisee .

The Franchise Regulations also require the contract contain a clause setting out the time period during which the franchisee may rescind the agreement (post- execution of the contract) . Unless otherwise specified, the initial term of the contract must not be less than two years. Further, where deposits or other fees are required prior to execution of the franchising agreement, provisions for the use and refund of the same must be expressly stated therein. Advertising and promotional fees collected by the franchiser must be used specifically for such stated purposes and accounting thereof should be provided to the franchisee within a timely basis.

The franchiser is required to report annually, by March 31, the status of each franchise agreement.

6. International/Cross-Border Franchising

International or cross-border franchisers must file, in accordance with the Archival Filing Measures.

7. Penalties

Penalties for the violation of the Regulations are as follows:

1. Failure to meet Qualifications (see Item 2): confiscation of illegal income, and fine of RMB 100,000 to RMB 500,000;

2. Franchising by individuals (natural person): confiscation of illegal income, and fine of RMB 100,000 to RMB 500,000;

3. Failure to complete Filing Requirements: order time limit for rectification and fine of RMB 10,000 to RMB 50,000, and where franchiser fails to file within the time limit a fine of RMB 50,000 to RMB 100,000 and public announcement; and,

4. Failure to provide Franchise Agreement thirty days prior to the signing or failure to disclose or concealing information relevant to the franchisee: fine of RMB 10,000 to RMB 50,000, or where serious RMB 50,000 to RMB 100,000 and public announcement thereof.

5. 'Grandfathering' Provisions

Companies already conducting franchising activities have one year to file according to the Franchise Regulation.

III. Conclusion

China represents a tremendous opportunity for international franchise operations. Although there are numerous challenges and complexities in establishment and operations, the recent legal changes have largely liberalized the franchising market for foreign investors. In combination with the current rates of economic growth, the timing is ideal for foreign franchisers to explore opportunities in the Chinese market.

For further information, please contact:

Gregory Sy
Vice-chair, International Practice Group
Tel: 86-10-6517-1188
Email: gregsy@grandall.com.cn

Currie Lee
Foreign Counsel
Email: currielee@grandall.com.cn

Putting Down Financial Roots

One of the best ways to ensure personal financial success involves buying and operating a franchise business. There are literally thousands of opportunities out there in hundreds of different disciplines, and all it takes is commitment, dedication, and cash. The question prospective franchise owners ask more than any other has to do with franchise costs. Before you can decide what sort of business to purchase, you need to know the franchise cost and exactly what it covers. While every business is different, there are enough commonalities from one franchising system to another to make some educated guesses about franchise costs.

Costs to Open a Franchise

Every company that provides franchising as a means for operating as part of its system charges a franchise fee. This upfront payment goes toward training, ongoing corporate support, and things like site selection if your business requires a storefront or some other retail type presence. A brief analysis of a broad range of franchises shows that the average franchise fee can run anywhere from $20,000 to $50,000. Generally speaking, the more prestigious the brand, the higher the franchise fee, although there are plenty of good options at the low end of that spectrum. It should be noted that most low priced franchises are mobile or home-based operations, although not all. To open a franchise, you will also need to purchase inventory and supplies, since nearly every franchise agreement stipulates the use of specific kinds of items in order to make sure that every franchise is identical. For example, the reason that hamburgers from a particular fast-food restaurant look and taste the same from Maine to Hawaii is because the parent company engages bakeries and meat suppliers from coast to coast that will provide a consistent product. Depending upon the type of franchise you buy, inventory and supplies can run anywhere from $20,000 to $150,000 before you open your doors.

Additional Franchise Costs

Legal fees are another franchise cost to be borne by anyone getting ready to open this kind of business. There are franchise documents to sign, equipment and property leases to consider, and financing terms to review. You should expect to pay a franchise attorney anywhere from $1,500 to $5,000 for his or her work. If you need a place to do business, there will be real estate construction costs for a new building, or build-out costs to remodel an existing space to fit your particular needs. No matter which of these may be necessary, prices will vary from one location to another depending upon prevailing real estate markets. The average build-out of existing space can run from $20 per square foot to more than a hundred.

Working Capital

Two additional categories of franchise costs round out this list. Most corporations charge a recurring royalty to its franchisees, which serves a twofold purpose. This fee, which can be as small as a few percent of a franchise's gross sales revenue to as much as 12-15 percent, is oftentimes earmarked toward national ad and marketing campaigns that benefit every franchise owner, no matter their location. It also serves as the primary revenue source for the parent company, especially if they do not operate locations of their own. The final element of the franchise cost process involves working capital. These are funds that allow start-ups to weather those early days of business, where sales are slow until a loyal customer base is developed. Most franchisers caution their franchisees that they should have at least six months of working capital on hand, and more is always better. Among the franchise costs that need to be covered here are payroll, taxes, royalties, rent, advertising, utilities, insurance, and the restocking of inventory and supplies. A good rule of thumb to follow is to set aside double your start up costs, using that extra cash (or a reliable line of credit) as a cushion against unforeseen circumstances.

Congratulations! You are looking to become a business owner in the franchise arena. There are over 1500 options for you to choose from. How does someone separate and decide which choice is right for you?

It is important to first decide the amount of capital available for you new business. Franchises come in all shapes and sizes. There are service based franchises, retail product(s) franchises, restaurant franchises, auto service franchises and many others. The amount of capital required will also vary greatly.

If you are looking to purchase a top level franchise such as Subway, be prepared to have a large sum of money available. Most of the top level franchises are going to require a minimum of $50,000 of available cash in addition to a stellar financial statement. Some franchises will be upwards of $1 million needed. There are some franchises available for around the $10k investment level, but you will most likely need at least another $10k for equipment, inventory, building costs, etc.

If you have a maximum of $10k available for all of the above listed costs, your options may be somewhat limited. For those that have $25k-$50k, your available choices will open up considerably but most likely will still exclude most of the top tier options. For those with $150k+ available, your choices to purchase a more proven franchise will be significantly greater.

Where can a person go to find quality information in a non-biased way? There are a few websites that you should find beneficial.

This link will give you an overview of the things to look for in a franchise and how to evaluate each one.

http://www.franchisedoc.com/evaluate.html

The FTC has a great site with an unbiased view of what to look for when choosing your franchise. See their site at:

http://www.ftc.gov/bcp/edu/pubs/consumer/invest/inv05.shtm

Be careful of any sites that list franchises available with links to the respective companies. This is in and of itself not a bad thing, but know that most of these sites receive a commission for you clicking and/or purchasing a franchise there and the listings will most likely be limited to those companies that they receive this commission and may omit many franchises that you would be interested in. Careful searching and planning should always be exercised in evaluating any business opportunity.

What are the benefits of purchasing a franchise?

1. You should have a better chance of success.

2. The franchise you purchase is (or should be) already proven in the market place.

3. The company will provide you with the support and systems to help avoid mistakes of a stand alone business. In essence, your learning curve is greatly diminished.

4. Problem solving. With the company and numerous other franchise owners in the company, problem solving and better solutions to issues can happen more quickly and efficiently.

5. Management support. You will have access to people that can help you with decisions, problems and marketing. Their expertise is a part of what you pay for with your franchise fees and royalties.

6. Buying power of a larger group usually means cheaper costs for the goods your business needs. Ongoing research and new product introductions are also available for the franchise owner from the franchise company.

Let's examine some of the pitfalls/downsides of franchising.

1. Excellent products don't automatically transfer into excellent franchise opportunities. Be careful of newer franchises. Know how long they have been in business and be sure to contact references of the franchise owners that they provide but also do some calling of those that own the franchise you are looking to purchase from those they don't provide. Google search for specific locations and talk to several owners and get their opinions.

2. A fast growing franchise system may or may not be a good thing. Newer franchises should grow faster than older established franchises. This may be a good sign of future growth and business for you, but you must also beware that the company has the infrastructure to handle this rapid growth. This is where you need to ensure that the territory that you receive from the company is rock solid. Have your legal advisors make sure that one year from now the company can not sell a franchise 6 blocks down the road from you. This can kill your business in a hurry!

3. Employees are going to be a significant part of your future. If you have never had someone working for you, the switch to having and managing employees can be daunting. With employees come other areas for concern. You now have payroll taxes, workers compensation, benefits, reliability issues and several other challenges. Many new franchise owners report that the single biggest "headache" in their new business is managing and dealing with employees. Know that you will be spending a lot of your time dealing with employees directly or with the accompanying compliance and paper shuffling that comes with employees.

4. Don't ever purchase a franchise thinking you will have more time or freedom of your schedule! This mistake has cost many a new franchisee money and peace of mind. Be prepared to double the amount of hours you currently work once you purchase, open and operate your new business.

5. Have a back up income plan in place. Many new businesses take some time to become profitable. As the new owner of a business, you are the last person to get a "pay check". Employees, government entities, vendors, suppliers and your business cash reserves all get paid before you do. Becoming profitable is certainly easier with a franchise than opening your own stand alone business, but make sure you have at least 6 months of cash in the bank to live on before you should expect the new franchise to provide you with income to live on.

So, the pros and cons of franchise ownership are really what you have to weigh. For some people, working within a stringent business system is difficult. This can be especially true for those true "entrepreneurs" or those that aspire to become an "entrepreneur". For many, there are some excellent alternatives to franchising that are worth consideration.

If the above pitfalls outweigh your desire to purchase a franchise, these alternatives can provide you with the following benefits.

1. Tremendously lower costs to start and operate than a franchise with no ongoing royalty fees.

2. No employees to pay payroll taxes on, benefits for or head aches to deal with.

3. The world can be your market. No limitations as to where or how you can market your business.

4. Proven systems with a few select franchise alternative companies. Be careful of "get rich quick" schemes and scams. Do your research for these business opportunities and make sure you find done with a high profit margin.

5. Be wary of M-L-M compensation plans. Although there is nothing inherently wrong with these plans, most people prefer to keep the commission they earn with their business for themselves.

For an excellent low cost franchise alternative that provides several of the benefits of a franchise with a franchise level income, check out:

Money Saving Franchise Alternative

In summary, there can be many benefits of purchasing a franchise. If you are in a position finacially and have the amount of time required, you may be an excellent candidate for franchise ownership. Select carefully and utilize the resources listed in this article. For those that can not invest the required capital and can not go without a paycheck for 6+ months, check out the alternative listed above.

If you are interested in becoming a franchisee, chances are you are looking long and hard at all the franchises available before you make your decision. This is a good thing; you don't want to make a quick or rushed decision on your future investment. Even though franchises have a higher potential for success, they can still flop. It is important that you look hard enough in every aspect to make sure you choose the right franchise for you and your future.

If you have looked hard enough for your future franchise if you can answer and understand the following things.

First of all, you need to know if the franchise is something that you interested in. If you are not interested in that particular franchise then the chances of you putting all your effort into it and trying to make it successful are slim to none. Since there are so many options available pick on that you like!

Next, is the franchise something that you are able to do physically and mentally? You need to know about what you are getting yourself into. If you don't know anything about auto body repair, then that is probably not the best choice for you. Or even if you do know about it, but you cannot physically handle what is expected of you, then you may want to choose another franchise that is available.

Another big thing to consider is if the contract that the franchisor offers is agreeable to you as well. If you don't feel comfortable or agree with something in the contract that can lead to problems in the future for your franchise. The contract is a binding agreement to both the franchisor and franchisee, so if not followed there will be consequences. Know what you want and don't want for your future franchise opportunity.

You should also figure out how much support and training is offered with the franchise you are interested in. You may want a lot of support or you may want just a little. It is really a personal choice, but each franchise is different. So, even if the franchise sounds good, but they will interfere to little or not enough for you liking it is important that you take that into consideration on your decision.

It is also very important you figure out the costs that it will require buying and maintaining your future franchise. Just because the franchise costs more doesn't make it a better franchise. Don't get into an agreement that you cannot handle financially. That is a huge reason for failure, getting to far into something and not making any returns. Stay within your means!

The key is that you want the best franchise for your needs. You must find a franchise that fits what you want and also one that gives you the most returns. Basically you need the franchise that will benefit you in more ways than one if you plan to be successful and make profit while keeping yourself happy.

So, look long and hard and take a long time making your decision, that is the right thing to do when selecting a future franchise!

WHY COMPANIES FRANCHISE A BUSINESS MODEL
Imagine opening 100 new business locations without having to foot any bills for real estate, equipment and build out costs or taking on any risk. Even more, imagine managers running all those locations, which are just as committed to growing the company as you - and not having to pay them a dime. In fact they pay you money for the right to operate your business model.

For many companies, creating a franchise program is a sensible way to achieve rapid, profitable growth without giving up any control or ownership. Going from a single location to a dozens or even hundreds is possible and well-documented because franchise owner-investors put up all investment capital, shoulder all risk and assume all day-to-day operating responsibilities. It's expansion, using OPM - Other People's Money.

ENTERING A NEW BUSINESS
The bad news is a company planning to franchise must realize it is entering a new business, offering an entirely different service (training & support) to entirely new customers (business owner-operators). This new business requires different skills, abilities and expertise. In the new business of franchising, it is critical to develop effective evaluation, documentation, mentoring, training and consulting skills.

THE FRANCHISE FEASIBILITY ANALYSIS PHASE
An indispensable step before any franchise a business development program gets underway is an analysis of the concept and business model. Has the concept been sufficiently proven in the marketplace? How profitable are existing prototypes or company-owned outlets? Franchising will not solve existing problems, it will only intensify them. Franchising is not a way to raise capital, get rich quickly or expand a business with existing problems. There must be sufficient profitability in the business model so that royalty and other payments can be made and leave the franchise owner with a sufficient profit.

THE FRANCHISE STRATEGIC PLANNING PHASE
A successful franchise development program begins with a solid plan - a foundation for franchising. Often there is little or no strategic planning with new companies entering the franchise industry. This is because they utilize the services of a franchise consulting firm or franchise attorney, where little or no attention is paid to critical strategic planning issues. What is called for is not a traditional business plan, a rather thick document that normally does nothing but collect dust in the dark drawer of someone's desk. More important than a business plan is a strategic plan - a vision of the franchise program together with a limited number of concrete, achievable action steps.

THE FRANCHISE DOCUMENTATION PHASE
If your company made doing a good job at the planning stage its number one priority, franchise documentation goals will be apparent. Proprietary assets (like recipes, formulas, methods, branding, operating techniques and customer information) need to be identified and protected. A catchy and appropriate name, logo and tag lines are registered as trademarks or service marks.

A franchise operations manual and franchise training program are developed, often from scratch, to impart business day-to-day operating skills to franchise owners as well as ensure uniformity of products and services. The franchise operations manual and training program curriculum must be drafted or edited with a particular focus. Certain topics, chapters and policies used in manuals for company-owned locations, for example, are entirely inappropriate in a franchise environment, creating significant franchise liability issues.

Finally, and only after all of the above are underway, a FDD Franchise Disclosure Document, similar to a securities (stock offering) prospectus, is prepared by a competent franchise attorney. Doing it correctly and with a balanced, fair perspective can save going to the courtroom later. Using a boilerplate or online FDD template will almost certainly guarantee a visit to the courtroom down the road. Since these visits cost hundreds of thousands of dollars and up, they are not cheap and far outweigh the cost of doing it right to begin with.

Training the Franchise Management Team
When the documentation phase is over, momentum gathers as the exciting implementation phase begins. This is where the sparks begin to fly as franchises are sold, new franchise owners are taught and trained, and opening assistance is provided. It's also when most new franchise companies make serious mistakes that haunt them for years or even decades to come.

The reason: most new start-up franchise management teams have not been trained in how to properly operate their new business, nor can they afford to hire a six-figure, salaried person with franchise management experience. A more practical solution: provide new franchise companies with in-depth franchise training instructional workshops as well as on-going, as-needed advice based. At FDD, we offer this type of training and on-going support based on three decades of excellence and experience in franchise industry best practices.

Everybody dreams of becoming his or her own boss, but is it so easy to kiss your job goodbye? Yes, it is possible if you open a franchise business. Owning a franchise business opens limitless opportunities; you can become your own boss and lead a great lifestyle.

With all the resources available on franchise opportunities nowadays, locating your ideal franchise business has become much easier. There are plenty of websites that provide detailed information on owning a franchise business. These websites help potential franchise owners find the best possible franchise information on business opportunities and franchises for sale. These franchise directories are essential tools to help entrepreneurs find new business ideas for any new enterprises. Most of the more established franchise directories extensively cover the franchise industry sectors such as retail, business services, home improvement, food services, and senior care etc.

As there are a huge number of franchise opportunities available, how do you pick the right franchise opportunity for you? It is important that your interests match your choice of franchise business. To start with, carefully take stock of what you really enjoy doing, what you want out of your business and what you want to achieve out of life. Write down a list of your interests, desires and passions. What kind of jobs have you held before or what past opportunities have you explored? After you have reflected on these questions, give some thought on the type of franchise business opportunities that appeal to you and that can help you realize your ambitions and goals.

Once you are committed to buying a franchise business, your next step will be to decide which service or product you want to invest in specifically. You should also investigate the scope and the details of the franchise business you want to get into in terms of profitability, investment opportunity, market viability etc.

Before starting a franchise business it is a good idea to consult with experienced entrepreneurs in the same field of business. Owning and operating a business is a large commitment as it involves a lot of money, time and energy, so you do not want to be stuck running a business that you do not enjoy nor is the right fit for you.

Many franchise businesses opportunities in the United States are a perfect fit for small business owners starting down the road to entrepreneurship. Starting with a small business franchise makes sense if you are looking for an opportunity that is a safer investment than traditional business.

Explore the possibility of franchise business ownership if you want to lower the risk of owning a traditional business. Before investing in any franchise business, be sure to get a copy of the franchiser's disclosure document. Established enterprises such as coffee franchises or restaurant franchises depend on their franchises to penetrate untapped market segments at a lower risk of failure. For any franchise business, the brand recognition and the high quality standard already established by previous chains provide a huge advantage to new franchisees.

You'd like to become self-employed, but would like even better the chance to enter the marketplace with a product or service which has and established track record. You, in other words, have a franchise idea, and need to take the next step.

But taking on a franchise demands a lot from you; you'll need to have the financial wherewithal and business experience to make you good franchisee material. And you'll need some of the kind of franchise idea for which you'd be a good fit.

Some franchise ideas make millions, and some franchise ideas make paupers. The great majority of the time, a franchise's performance is directly tied to its proprietor's dedication and skills in overcoming obstacles.

You will be able to choose from among the three types of franchise idea--wholesale distribution, services, and products. If you want any chance of success, you should not choose based on the projected earnings of a franchise; you should choose based on which franchise idea would have you eager to get to work each morning and not wanting to close down each night.

About The Money

When you've settled on a franchising idea, you will have to finance it. First, you'll have to pay a non-refundable start-up fee which will vary according to the franchise into which you are buying. You'll need the money to cover assorted costs like insurance, local licensing fees, inventory, and possible monthly or annual royalties due to the franchisor.

You should read the fine print, or better yet, have a franchise attorney read it, of the franchising agreement for every franchise idea which you are considering. Understanding all the expenses involved with each will give you a much clearer picture of which franchise idea is the best fit for your finances.

About Business Smarts

You may have a terrific franchise idea and money burning a hole in your pocket, but have not given a thought to whether your business experience will be helpful in allowing your franchise to succeed. Having knowledge of the inner workings of a business is the best way to have a successful, and lucrative, franchise in that business.

If your business expertise is in fast food management, putting your life's savings into a fitness center franchise does not make a world of sense. And vice versa.

About Passion

When you have honestly assessed your financial situation and business acumen, you will be reasonably close to hitting on the right franchise idea. But the thing that will put you over the top, and give you the best chance you are likely to have at being a successful franchisee, is you passion for the work you will be doing.

If you cannot get excited about the product or service a franchise sells, you are not going to get your customers excited either, and they will not be coming back with return business. Your franchise will be doomed before it gets off the ground.

Finances, business smarts, and enthusiasm for your work are the factors son which your which will determine the very best franchise idea for you.

During the recent International Franchise Expo in Washington, DC, one of my students asked me if it was true that the U.S. Department of Commerce determined that franchises succeed 97% of the time.

"Where'd you'd see that information?" I asked.

The student said, "I found it on the Internet."

Don't Believe Everything You Read Online

That's what I figured she'd say because I've read it on the Internet, too.

And before we go any further, let me tell you that it's a lie. And it's not a lie that the U.S. Government perpetrated.

So how did this story get started? It's in more than one place on the Internet, and more than the occasional franchise seminar leader uses it, too.

The fact is the U.S. Government did conduct studies on the longevity of franchises in the 1970s and 1980s. A long, long time ago! The fact is the government didn't study the "success" rate of franchises. The government studied the "survival" rate of franchises.

Year after year, through the late 1980s, the government's leading franchise expert, the late Andrew Kostecka, reported that 97% of franchise licenses "survived" from year to year. In other words, a franchise license that existed one year would still exist the next year when the study was conducted. Through the years, Mr. Kostecka concluded that 97% of franchises "survive."

Survival Doesn't Necessarily Mean Success

Mr. Kostecka always pointed out, however, that "survival" did not necessarily equate to "success." On many occasions he noted that a franchisee could be in bankruptcy, but the franchise license was still intact and therefore part of the 97% that survived.

Through the years, overly ambitious franchise sales people substituted the word "success" for the word "survive" in Mr. Kostecka's findings and voila!, they had quite an attractive testimonial for buying a franchise. Some people--including some who just don't know any better--continue to use the erroneous data today.

But don't you believe it! It may still be true today that 97% of franchise licenses survive from year to year, but... so what?

It's not important.

And that may be the reason why no one has repeated that study since the late 1980s. That and the fact that the government hasn't demonstrated all that much interest in studying any aspect of franchising. That's not a jab or a complaint--it's probably just as well that the government spends its money elsewhere.

Does The Data Matter?

In every franchise seminar that I teach, the "survival vs. success" issue always comes up and I'll tell you what I tell my students. Even if I could tell you that 97% of franchises succeed, it wouldn't be good enough for the person who bought one of the franchises that fell into the 3%!

Don't worry about generalized, across the board statistics in franchising. First, they don't exist where success is concerned, and second, they would not be relevant.

Here's what does matters: The rate of success for the franchise that you want to buy?

Now that's worth knowing!

So before you buy a franchise, do this:

1. Ask the franchiser about the success vs. failure rate of the franchise. How many franchises failed last year? The year before?
2. Ask existing franchisees the same questions!
3. Carefully review the Franchise Disclosure Document, which the franchiser is required to give you. It's free and it includes detailed information about the franchise company, including its performance from year to year.

One caveat: Franchisors may try to mask their failure rate by turning failures into transfers, or re-sales. Rather than close the doors, a failing franchisee may be fortunate enough to sell to a new franchisee. That sale is not characterized as a failure, but a "transfer." Sometimes franchisers will buy out failing franchisees just so they can "transfer" the franchise to a new party.

Before you buy a franchise it's important that you take your time and investigate before you invest. And while you can be sure that the U.S. Government does not claim that 97% of franchises succeed, you may find a franchise where 97% or better of the franchises in that network have succeeded.  

When you've made the decision to invest in a franchise and open up your own business, you're taking a significant risk with your finances and time. Your intent is to enter into a long-term business relationship with the franchisor and create a healthy and profitable partnership that has the ability to be sustainable for many years. In order to be certain that you're following correct business procedure and are doing all the things that come with franchise ownership the right way, you need someone to watch your back. You need someone who has your best interest at heart and who will give you legal advice on any type of franchise matter. Hire a franchise lawyer.

Franchise attorneys practice franchise law and specialize in the area of business law that concerns the rights and the licenses given to sell a company's goods or services. They have extensive knowledge of who can operate franchise businesses within a particular region, the legalities behind a company's trademark or trade name and can maintain a healthy relationship between franchisors and franchisees.

While a franchise consultant can help you with business-related questions and can introduce you to others in franchising community, a franchise lawyer only works with franchises. They will work only for you and offer advice on what is best, from a legal standpoint, for you and your franchise. They will always offer advice and guidance that keeps your best interest in mind. There is no impartiality or trying to compromise with others, because a franchise attorney works for you and you alone.

When looking to hire a franchise lawyer, ask others in the business community whom you respect for recommendations. Trusted business officials can give you the contact information for a law firm specializing in franchise law because they may have dealt with them in the past. Research attorney and law firms to gain insight on some of the cases they've had to deal with in the past. Find out their track record for success and they reputation they have within the business community.

Once you find an attorney who specializes in franchise law (not general law or general business law - but franchise law), set up a meeting to get to know him or her and ask as many questions as you can to be sure they'll be the right lawyer for you. The attorney you hire will become an important part of your business, so be sure you are able to build a solid relationship with him or her. You may need the franchise attorney's services often, so be sure you are able to communicate effectively and are able to have a productive working relationship with them.

Discuss any fees and charges before you agree to hire a franchise lawyer. They may ask for a retainer or they may require a regular payment structure. It is important to know what will be expected from you, payment-wise, before entering into any agreement with the franchise attorney.

Finding the right franchise lawyer will give you a great advantage when it comes to business interests that are far beyond your control. A franchise attorney working on your behalf will be a great legal consultant and asset to your franchise business.