Frequently Asked Franchise Questions
Many people dream of being an entrepreneur. By purchasing
a franchise, you often can sell goods and services that have instant name recognition
and can obtain training and ongoing support to help you succeed!
FAQs-Frequently Asked Questions About Franchising
FAQs-Frequently Asked Questions About Our Website
1) What Is Franchising?
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 agreement governs
the method for conducting business between the two parties. Although forms of franchising
have been in use since the Civil War, enormous growth has occurred more recently.
Industries that rely on franchised businesses to distribute their products and services
touch every aspect of life, from automobile sales and real estate to fast foods
and tax preparation.
In its simplest form, a franchiser owns the right to a name or trademark and sells
that right to a franchisee. This is known as product/trade name franchising. In
the more complex form, known as business format franchising, a broader and ongoing
relationship exists between the two parties. Business format franchises often provide
a full range of services, including.
- Site selection.
- Training.
- Product supply.
- Marketing plans.
- Financing.
Generally, a franchisee sells goods or services that are supplied by the franchiser
or that meet the franchiser's quality standards.
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2) What are some of the Benefits and Responsibilities of Franchise
Ownership?
There are a number of aspects to the franchising method that appeal to prospective
business owners. For example, easy access to an established product and a proven
method of operating a business reduces the many risks of opening a business. In
fact, U.S. Small Business Administration and U.S. Department of Commerce statistics
show a significantly lower failure rate for franchised businesses than for other
business start-ups. The franchisee purchases not only a trademark, but also the
experience and expertise of the franchiser's organization. However, a franchise
does not ensure easy success. If you are not prepared for the total commitment of
time, energy and financial resources that any business requires, you should stop
and reconsider your decision to enter the franchise business.
A franchise typically enables you, the investor or "franchisee," to operate a business.
By paying a franchise fee, which may cost several thousand dollars, you are given
a format or system developed by the company ("franchisor"), the right
to use the franchisor's name for a limited time, and assistance. For example,
the franchisor may help you find a location for your outlet; provide initial training
and an operating manual; and advise you on management, marketing, or personnel.
Some franchisors offer ongoing support such as monthly newsletters, a toll free
800-telephone number for technical assistance, and periodic workshops or seminars.
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3) What Factors Should I Consider when Selecting a Franchise?
Like any other investment, purchasing a franchise is a risk. When selecting a franchise,
carefully consider a number of factors, such as the demand for the products or services,
likely competition, the franchisor's background, and the level of support you
will receive.
Demand
Is there a demand for the franchisor's products or services in your community?
Is the demand seasonal? For example, lawn and garden care or swimming pool maintenance
may be profitable only in the spring or summer. Is there likely to be a continuing
demand for the products or services in the future? Is the demand likely to be temporary,
such as selling a fad food item? Does the product or service generate repeat business?
Competition
What is the level of competition, nationally and in your community? How many franchised
and company-owned outlets does the franchisor have in your area? How many competing
companies sell the same or similar products or services? Are these competing companies
well established, with wide name recognition in your community? Do they offer the
same goods and services at the same or lower price?
Your Ability to Operate the Business
Sometimes, franchise systems fail. Will you be able to operate your outlet even
if the franchisor goes out of business? Will you need the franchisor's ongoing
training, advertising, or other assistance to succeed? Will you have access to the
same or other suppliers? Could you conduct the business alone if you must lay off
personnel to cut costs?
Name Recognition
A primary reason for purchasing a franchise is the right to associate with the company's
name. The more widely recognized the name, the more likely it will draw customers
who know its products or services. Therefore, before purchasing a franchise, consider:
- The company's name and how widely recognized it is. -- If it has a registered
trademark.
- How long the franchisor has been in operation.
- If the company has a reputation for quality products or services.
- If consumers have filed complaints against the franchise with the Better Business
Bureau or a local consumer protection agency.
Training and Support Services
Another reason for purchasing a franchise is to obtain support from the franchisor.
What training and ongoing support does the franchisor provide? How does their training
compare with the training for typical workers in the industry? Could you compete
with others who have more formal training? What backgrounds do the current franchise
owners have? Do they have prior technical backgrounds or special training that helps
them succeed? Do you have a similar background?
Franchisor's Experience
Many franchisors operate well-established companies with years of experience both
in selling goods or services and in managing a franchise system. Some franchisors
started by operating their own business. There is no guarantee, however, that a
successful entrepreneur can successfully manage a franchise system.
Carefully consider how long the franchisor has managed a franchise system. Do you
feel comfortable with the franchisor's expertise? If franchisors have little
experience in managing a chain of franchises, their promises of guidance, training,
and other support may be unreliable.
Growth
A growing franchise system increases the franchisor's name recognition and may
enable you to attract customers. Growth alone does not ensure successful franchisees;
a company that grows too quickly may not be able to support its franchisees with
all the promised support services. Make sure the franchisor has sufficient financial
assets and staff to support the franchisees.
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4) How can I find a lawyer who specializes in franchising?
Entrepreneurs in search of a franchise lawyer can start by checking with your state
bar association. Many state bar associations allow member lawyers to identify the
areas of practice in which they specialize, and franchise or distribution law is
a recognized specialty in an increasing number of states.
The American Bar Association also publishes a Membership Directory of the Forum
Committee on Franchising. The Directory, which is organized by state and city, lists
the names, addresses and telephone numbers of attorneys who are members of the Forum
Committee. You can obtain a copy of the Directory from:
American Bar Association Service Center
750 North Lake Shore Dr.
Chicago, IL 60611
(312) 988-5522
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5) What is the Disclosure Document?
The Federal Trade Commission (FTC) requires sellers of franchises and other business
opportunity ventures to provide prospective investors with the information they
need to make an informed investment decision. It also requires that all earnings
claims be documented, that the information investors receive be complete and accurate
and that investors have adequate time to consider and evaluate the disclosures before
making any final purchase commitment. All required information is given to prospective
investors in the form of a franchise disclosure document, which must be furnished
at least 10 business days before any purchase may occur. This document includes
20 important items of information, such as
- Names, addresses and telephone numbers of other franchisees.
- A fully audited financial statement of the seller.
- The cost required starting and maintaining the business.
- The responsibilities you and the seller will share once you buy a franchise.
- Litigation involving the company or its officers, if any.
Again, use your professional support to examine all of these issues. Some of the
contract terms may be negotiable. Find out before you sign; otherwise, it will be
too late.
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6) How Can I Evaluate My Potential To Become a Successful
Franchisee?
Perhaps your most important step in evaluating a franchise opportunity is examining
your own skills, abilities and experience. The ideal franchisee is a creative, outgoing
person who is eager to succeed, but not so independent that he or she resents other
people's advice. You must be able to balance your entrepreneurial initiative
with a willingness to comply with the business formulas used by the franchiser.
Remember, a successful partnership between a franchisee and franchiser involves
a mutual understanding of each other's values and achievements.
Determine exactly what you want out of life and what you are willing to sacrifice
to achieve your goals. Be honest, rigorous and specific. Ask yourself: Am I qualified
for this field
- Physically?
- By experience?
- By education?
- By learning capacity?
- Financially?
Ask yourself how this decision will affect your family. Do they understand the risks
and sacrifices required, and will they support your efforts? Beginning a franchise
business is a major decision that does not ensure easy success. However, an informed
commitment of time, energy and money by you and your family can lead to an exciting
and profitable venture.
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7) How Can I Prepare Prior to Shopping at a Franchise Exposition?
Attending a franchise exposition allows you to view and compare a variety of franchise
possibilities. Keep in mind that exhibitors at the exposition primarily want to
sell their franchise systems. Be cautious of salespersons that are interested in
selling a franchise that you are not interested in.
Before you attend, research what type of franchise best suits your investment limitations,
experience, and goals. When you attend, comparison shop for the opportunity that
best suits your needs and ask questions.
Know How Much You Can Invest
An exhibitor may tell you how much you can afford to invest or that you can't
afford to pass up this opportunity. Before beginning to explore investment options,
consider the amount you feel comfortable investing and the maximum amount you can
afford.
Know What Type of Business is Right for You
An exhibitor may attempt to convince you that an opportunity is perfect for you.
Only you can make that determination. Consider the industry that interests you before
selecting a specific franchise system. Ask yourself the following questions:
- Have you considered working in that industry before?
- Can you see yourself engaged in that line of work for the next twenty years?
Do you have the necessary background or skills?
If the industry does not appeal to you or you are not suited to work in that industry,
do not allow an exhibitor to convince you otherwise. Spend your time focusing on
those industries that offer a more realistic opportunity.
Comparison Shop
Visit several franchise exhibitors engaged in the type of industry that appeals
to you. Listen to the exhibitors' presentations and discussions with other interested
consumers. Get answers to the following questions:
- How long has the franchisor been in business?
- How many franchised outlets currently exist? Where are they located?
- How much is the initial franchise fee and any additional start-up costs? Are there
any continuing royalty payments? How much?
- What management, technical, and ongoing assistance does the franchisor offer?
- What controls does the franchisor impose?
Exhibitors may offer you prizes, free samples, or free dinners if you attend a promotional
meeting later that day or over the next week to discuss the franchise in greater
detail. Do not feel compelled to attend. Rather, consider these meetings as one
way to acquire more information and to ask additional questions. Be prepared to
walk away from any promotion if the franchise does not suit your needs.
Get Substantiation for Any Earnings Representations
Some franchisors may tell you how much you can earn if you invest in their franchise
system or how current franchisees in their system are performing. Be careful. The
FTC requires that franchisors that make such claims provide you with written substantiation.
Make sure you ask for and obtain written substantiation for any income projections,
or income or profit claims. If the franchisor does not have the required substantiation,
or refuses to provide it to you, consider its claims to be suspect.
Take Notes
It may be difficult to remember each franchise exhibit. Bring a pad and pen to take
notes. Get promotional literature that you can review. Take the exhibitors'
business cards so you can contact them later with any additional questions.
Avoid High Pressure Sales Tactics
You may be told that the franchisor's offering is limited, that there is only
one territory left, or that this is a one-time reduced franchise sales price. Do
not feel pressured to make any commitment. Legitimate franchisors expect you to
comparison shop and to investigate their offering. A good deal today should be available
tomorrow.
Study the Franchisor's Offering
Do not sign any contract or make any payment until you have the opportunity to investigate
the franchisor's offering thoroughly. As will be explained further in the next
section, the FTC's Franchise Rule requires the franchisor to provide you with
a disclosure document containing important information about the franchise system.
Study the disclosure document. Take time to speak with current and former franchisees
about their experiences. Because investing in a franchise can entail a significant
investment, you should have an attorney review the disclosure document and franchise
contract and have an accountant review the company's financial disclosures.
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8) Are There Additional Sources of Information?
Before you invest in a franchise system, investigate the franchisor thoroughly.
In addition to reading the company's disclosure document and speaking with current
and former franchisees, you should speak with the following:
Lawyer and Accountant
Investing in a franchise is costly. An accountant can help you understand the company's
financial statements, develop a business plan, and assess any earnings projections
and the assumptions upon which they are based. An accountant can help you pick a
franchise system that is best suited to your investment resources and your goals.
Franchise contracts are usually long and complex. A contract problem that arises
after you have signed the contract may be impossible or very expensive to fix. A
lawyer will help you to understand your obligations under the contract, so you will
not be surprised later. Choose a lawyer who is experienced in franchise matters.
It is best to rely upon your own lawyer or accountant, rather than those of the
franchisor.
Banks and Other Financial Institutions
These organizations may provide an unbiased view of the franchise opportunity you
are considering. Your banker should be able to get a Dun and Bradstreet report or
similar reports on the franchisor.
Better Business Bureau
Check with the local Better Business Bureau (BBB) in the cities where the franchisor
has its headquarters. Ask if any consumers have complained about the company's
products, services, or personnel.
Government Departments
Several states regulate the sale of franchises. Check with your state Division of
Securities or Office of Attorney General for more information about your rights
as a franchise owner in your state.
Federal Trade Commission (FTC)
The FTC publishes information that may be of interest to you, including business
guides -
www.ftc.gov.
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9) Why do you ask for my email address?
There are several places on our Website where we ask for your email address. We
use email to send you an order confirmation for requests for information made at
the Website. These are sent automatically as a service to you. When you send us
an email about a particular question, we will respond via email.
Also, we do not sell your email address to outside companies.
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10) What information do you collect about me?
We collect personal information when you request information, register for our discussion
forums, or enter a contest or sweepstakes. Gathering this information allows us
to fulfill your orders and improve your experience at FranchiseSearch.com. All personal
information is handled with the utmost discretion.
We collect personal information in the following areas:
Order Processing:
When you place a request for information from us, we collect personally identifiable
information such as your name, street address and email address (We may also collect
your phone number and fax number if supplied.) This information helps us to contact
you with any questions about your order and to fulfill your order accurately. We
also use this information to let you know about related products that may be of
interest to you.
Registering:
When you register, we collect the same information as outlined above in "order
processing." Registering provides you with the opportunity to receive notification
of items that we believe you will be interested in.
Contest/Sweepstakes Entry:
When you enter a contest or sweepstakes, we may ask for your name, address, phone
number, and email address. We use this information to contact you in case you win
and to let you know about our products and services. We may also ask you to answer
some questions relating to the promotion. Your answers to the questions in no way
influence your odds of winning. This information may also be shared with the event's
sponsor(s).
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11) What other kinds of information do you collect?
Besides the personal information outlined in the previous section, we also collect
certain information from our sites on an aggregate level.
We conduct surveys and other polls to learn the interests and opinions of our visitors
in order to improve our Website's performance and communication.
We may collect, on an aggregate level, information such as your service provider,
your browser type, your operating system, and information about your visits to our
Website. By obtaining this information, we can better ensure that all the features
we provide are tested thoroughly and operate effectively.
Finally, we may track responses to our promotions and communications in order to
serve you better.
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12) What can you tell me about the mechanics of the site?
Franchisesearch.com is an osCommerce based e-commerce solution which combines the
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