Franchising For You!

Earnings Claims

2009-04-22T11:46:00.000-07:00

As a franchisor, you are required by law to provide your franchisees with all the information about the earnings claimed. This includes all assumptions involved in the preparation and presentation of the franchise. These assumptions are based on the results from existing outlets and a percentage of the outlets which exceed or meet the predicted results. This information is prepared by the franchisor well in advance of any contract or agreement being signed. The earnings claims documents should tell you where to find substantiating evidence and additional information should you so desire. Franchisees have a right to this information for their own investigation and inspection.

The Importance of Location

2009-04-15T07:05:00.000-07:00

Never underestimate the importance of the location of your business. It is as important as your product or advertising offers. It literally makes or breaks your business, especially in retail. Not only is a good location important, but you must ensure that your targeted demographic matches the people that live or work in the area.

If your franchise is in manufacturing or distribution, you may be less dependent on your location and instead need larger premises at a lower rental cost to maximize profit. If your business is a motel, donut shops, gas station or small family restaurant, your best location may be off a major highway.

Stay tuned for more specific information on locations and how to get the best location for maximum profit!

Why Franchise?

2009-03-16T11:45:00.000-07:00

Here are some great reasons why you should consider franchising:

Reduced Risk
Although entering into a franchise may not guarantee success 100%, the very nature of franchising (and how it differs from licensing) greatly reduces the chance of failure.

A Proven System
The franchisor has a proven-to-be-successful method of operation well before you even get involved with him. You lose the obstacles and gains only opportunities. Make sure when entering a franchise, that you receive a completely proven system that includes essential components such as initial training, opening assistance, accounting systems, established suppliers, manuals and use of the trademarks. Make sure that the franchise has already gone through a significant "learning curve" This helps prevent you from repeating previous mistakes made by the franchise and gives you extra information and the value of others experience in inventory levels, store design, competition, pricing structure and operational data drawn from the entire system of the franchise itself.

Reduced Risk of Franchising

2009-03-08T21:34:00.000-07:00

Although entering into a franchise may not guarantee success 100%, the very nature of franchising (and how it differs from licensing) greatly reduces the chance of failure.
Well before you, the franchisee, enter the picture, the franchisor has a proven-to-be-successful method of operation. Because of this, the franchisor loses the obstacles and gains only opportunities. Make sure when entering a franchise, that you receive a completely proven system that includes essential components such as initial training, opening assistance, accounting systems, established suppliers, manuals and use of the trademarks. Make sure that the franchise has already gone through a significant "learning curve" This helps prevent you from repeating previous mistakes made by the franchise and gives you extra information and the value of others experience in inventory levels, store design, competition, pricing structure and operational data drawn from the entire system of the franchise itself.

Seattle's Best Coffee offers Franchising Opportunities

2009-02-03T17:07:00.000-08:00

There is exciting news for all you prospective franchisees: Seattle’s Best Coffee has announced that they will be expanding the franchising options that the company offers to include the entire USA. The strategy behind this move is to allow the company’s parent company, Starbucks, to offer greater variety and choice in the marketplace, thereby capturing more of the public’s attention.

Seattle’s Best Coffee has been developing quietly over the past four years. The company has seen some significant success, with over 550 cafes across America. The company is designed to be a friendly, accessible way for coffee lovers to explore specialty coffee, offering many milder blends and flavoured coffees.

Why Franchising?

2009-01-25T13:11:00.000-08:00

Companies generally decide to become franchises for one of three reasons. They are:

· Time
· People
· Money

Franchising allows companies to expand without having to worry about risking capital or debt. This is because the franchisee is responsible for the initial investment at the unit level, thereby allowing expansion to be possible with very little capital. Franchisees are often responsible for signing leases and service contracts. Because of this, franchising is able to allow a business to grow without the company having to deal with contingent liability issues.

Franchising allows solve the all-too-common business problem of not being able to expand because of a lack of good unit managers. This is because the franchisee replaces the unit manager. He or she has both an investment in the unit and a stake in the profits.

Building a Franchise in Quebec

2009-01-18T13:09:00.000-08:00

Here are three big reasons why franchising in Quebec is very different from running a franchise in the rest of Canada:

• All business contracts must be drafted in French
• Anyone doing business in Quebec must have a French name
• All advertising must be predominantly in French

These points are dictated by very strict laws the government of Quebec works really hard to maintain. Their guide is the Charter of the French Language, which outlines these laws. In the charter it is written that all business contracts of any kind must be printed and signed in French. It is the same charter that places restrictions on the type of advertising this is permissible in the province. Most of the advertisements must be in the language of the province, that is French, with only a fraction of it allowed to be in English.

Manuals

2008-12-28T18:38:00.000-08:00

As a franchisor, you are responsible for providing your franchisee and all business associates (including investors) with the various manuals needed to run a franchise successfully.

This includes:

• Pre-Opening Manual

• Operations Manual

• Policies and Procedures Manual

The manuals are an extension of the Franchise Agreement so its style, format and tone must be such that it enables the franchisor to enforce its rules regulations, policies and procedures. A proven and documented system of operation can be the single most valuable asset a franchisor provides a franchisee. Well written manuals can be a strong selling point for a franchise program.

Disclosure Documents

2008-12-28T18:32:00.000-08:00

If you are going to start your own franchise, you need to be sure you have the proper disclosure documents and manuals for your franchisees before you get started. Disclosure documents provide potential franchisees with detailed background information on the franchise company. Specific details about the officers are provided in these documents.

This includes:

• Who they are and their business history

• The organization structure of the franchise company

• The business concept

• Funds required by the franchisee

• Training provided

• Termination provisions

This document is required by law in certain provinces before you can sell a franchise.

The Purpose of a Franchise

2008-12-24T14:30:00.000-08:00

As you know, in a franchise the franchisor is actively involved in controlling the franchises methods of operation including the business’ location, the hours of operation and who manages the business itself. Trademark licensing is very different from this. A licenser has little if any control over your methods of operation in a licensing agreement.

Franchising also has a different end goal from licensing. Where a licensor is only concerned with improving his business through increased sales and common advertising, a franchisor actually wants the reputation and value of the franchise itself to go up, in addition to increasing sales and advertising.

To summarize if the franchisor or licensor has control only over the product itself, it is trademark licensing. You enter into the world of franchising when you surrender control of the conditions under which the product or service is sold.

Licensing vs. Franchising

2008-12-24T14:20:00.000-08:00

It is sometimes hard to differentiate between owning an actual franchise from a common business agreement known as licensing. In fact, before the advent of the modern business franchise, franchising was nothing more than a licensing agreement where the methods of operation were controlled by the “franchisor”.

The difference I would like to emphasize between the two is the degree of control available to the franchisor or licensor. The franchise is far more strict and controlled in its agreement when compared to licensing.

History of the Franchise

2008-12-11T17:55:00.000-08:00

In the early days of franchises, they were known simply as “Trade Name” franchises. This is because the franchisor simply allowed the franchisee to distribute goods using the franchisor’s trademark. This is essentially a licensing agreement and was typical for products such as automobiles, soda pop, and home entertainment products.

Under “Trade Name” franchises, the franchisees were still required to operate based on certain standards set by the franchisor in relation to quality of product or service, but essentially had a lot of freedom to do business in any way he/she wished.

Then came the advent of “business format” franchising, which upped the level of control exercised by the franchisor to include him dictating the methods of operation. The first of these franchises were real estate companies, diet centres and travel agencies. Perhaps the most well-known type of franchise, the fast-food franchise, combines both of these methods.

Buying a Franchise Unit

2008-12-07T19:23:00.000-08:00

If you’re planning on going into business for the first time, there is hardly any better way to do it than buying into a franchise. You can acquire a franchise either by buying into a new franchise or purchasing an established unit from the current franchisee (called a resale). Franchisors can often tell you if they have any units for sale and often these can be good deals to get into. If you get the chance, purchase a franchised unit that is not operating at its full potential as you see it.

For a good franchise system to function properly, all units must be working at their full potential. These are often good deals depending on the price and the reason for less-than-satisfactory performance. If the unit has a good location, for example, and inferior customer service is the cause of bad performance, this can be improved at a very low cost.

Balancing your Decisions

2008-12-07T18:37:00.000-08:00

Here are some tips for cultivating a successful franchise:

Have a passion for the business,
Understand the business
Be capable of financing it

It should be obvious that entering into a franchise outside of your financial means will not be a successful move. Learn to balance passion and logic equally when making your final decision about a franchise venture. Be sure that you feel good about everyone involved, excited about the new opportunity. At the same time, applying logic to your decisions will help you to analyze risks, demographics, and consumers. Be sure all the vital elements are there for you before you make any decisions.

Qualifying as Self-Employed

2008-12-04T14:22:00.000-08:00

This is a very popular category for immigrants to apply under. Despite this, very few applications are actually accepted. In order to qualify as a self-employed business immigrant, you must be a person who is able to start a business in Canada that will create substantial employment opportunities for themselves. This entrepreneur must also make a significant contribution to the Canadian way of life, whether through economic, cultural or artistic means. This category of immigrant is usually intended for artists, farmers, athletes, writers and others involved in the arts.

Business Immigration Program

2008-12-04T13:58:00.000-08:00

As a business immigrant, you are not required to have any previous business knowledge. You are also not required to make any minimum investment. Business immigrants rather are expected to create employment and generate movement in the economy. They are also expected to be managers of the company they are involved in. No matter what the case, the more successful your business and the more substantial of an investment you are putting into it, the greater your chance at being granted entrepreneur status. Immigrant status is generally granted at a federal level, but provincial officials do have some say and are influenced by provincial laws.

If you wish to apply under the Business Immigration program, you should prepare a business plan that will persuade your immigration officers that your business venture will be a success and a great asset to the Canadian economy. If you are just starting your business, you should not commit to any agreements or sign any contracts before having been approved for business immigrant status, as many applicants are denied.

Business Immigration (Pt. 2)

2008-11-22T12:39:00.001-08:00

After applying at a Business Immigration Centre, it will take six months to a year for your application to be processed, depending on how complete the application you submitted was and your circumstances. There are three steps involved in this whole process:

Submitting the application
Attending a personal interview at a Canadian embassy
Medical and Security checks

You must also submit a business plan or business proposal with your application. Consulting a lawyer or accountant for a bit of assistance is always helpful at this step. They will be very familiar with the application process. Also, be sure to check out the government of Canada website for even more information.

Business immigrants can apply for entry into Canada in one of three ways:

As a entrepreneur
As an investor
As a self-employed person

Business Immigrants in Canada

2008-11-22T12:11:00.000-08:00

Canada is not a country that discourages business immigrants. Quite the contrary, as it is relatively easy to become one, especially if you have the ability, resources and desire to invest in or establish a business in Canada. $437 million dollars of our economy in 1998 alone came from business immigrants. There are regulations and criteria that you must meet to qualify as a business immigrant in Canada. The Business Immigration Program in our country will grant you business immigrant status provided you meet these criteria and are willingly to strictly follow ministry or government guidelines. Regulations change from time to time so be sure to get up-to-date, current information. These regulations can also vary from province. Check with the appropriate authorities to get all the proper information.

If you wish to become a business immigrant you must apply at one of nine “Business Immigration Centres”. They are located in Beijing, Berlin, Buffalo, Damascus, Hong Kong, London, Paris, Seoul and Singapore.

Franchisee’s Right of Rescission

2008-11-17T11:08:00.000-08:00

There are special laws and privileges put in place by franchising legislature for the sole purpose of protecting the franchisee. The franchisee’s right of rescission allows him or her to take legal action against misrepresentation on the part of the franchisor. If the franchisor gives you information in his disclosure document that causes you to work at a financial deficit, you have up to 60 days upon receiving these documents, or even up to 2 years after agreeing to run the franchise, to take action. The best action to take is to give the franchisor a notice of cancellation, at which point he is legally responsible for compensating your losses in acquiring, running and setting up the franchise. He has 30 days to grant you this compensation.

Earnings Claims

2008-11-16T18:36:00.001-08:00

Your franchisor is required by law to provide you, the franchisee, with all the information about earnings claimed, including all material assumptions involved in the preparation and presentation of the franchise. These assumptions must be based on actual results of existing outlets and a percentage of the outlets which exceed or simply meet the portrayed results. All this earning claims information must be prepared for you well in advance of signing any contract or agreement. These documents should also tell you where you can find substantiating evidence and additional information, should you desire. All franchisees have a right to this information for their own inspection. If any information is only relevant to a franchisor-operated outlet, this must be clearly stated in the documents that the results may vary with a franchisee-operated outlet. The whole purpose of earnings claims is to allow the franchisee to ascertain which specific level or range of sales, costs, income and profit can be expected for a franchisee.

Disclosure Document

2008-11-12T14:02:00.000-08:00

If you are interested in a franchise based in Alberta, Ontario or PEI or are interested in running a franchise in one of these provinces that is not based there, you need to get the franchisors disclosure documents 14 days prior to signing any agreement or making any payment. This is required by law in these provinces. Be sure to request these documents if the franchise is not based in these provinces, as the franchisor might not be familiar with the procedure. Give him plenty of time to get the documents to you. The documents should include all agreements or contracts to be signed, as well as financial information and all other documents that are required by regulation. You have to get the document signed by a minimum of two officers or directors as confirmation that the documents are completely true and not omitting anything or importance. The disclosure document is a barometer of the merits of a franchise, and you should use it to determine whether the franchise is right for you. Be sure, as always, to have these documents reviewed by your accountant, lawyer and a franchising consultant if possible.

Franchise Legislation

2008-11-05T09:31:00.001-08:00

Canada is a pretty liberal country when it comes to franchising rules and regulations. Provinces have only begun to create legislation controlling the practices of franchises and until 1997 the only province to have such legislation was Alberta. Because of an increase in legal action and lawsuits between buyers and sellers of franchise, Prince Edward Island and Ontario has each added their own legislation, Ontario in 2000 and PEI in 2005. The three acts are very similar in nature and are named after their respective provinces (“The Albert Act”, “PEI Franchise Act”) with the exception of Ontario (“The Arthur Wishart Act”).

Alberta has the strictest legislation of the three provinces and does not allow the sale of franchises in the country to anyone who is not a permanent resident.

More on this pertinent issue in future posts.

Rent Payment

2008-11-05T09:05:00.000-08:00

If you haven’t considered the amount of rent you will have to pay to use a certain location, now’s the time. More than likely, you have, and rightly so as a crucial factor in the success of your business. Many new businesses fall early in bankruptcy because the price of rent gets overwhelming in the face of less sales volume than anticipated. The greater volume of customers a location promises, the more expensive its rent will be. Should you choose a location that is more expensive, you need to be honest with yourself about whether or not you can justify it in the long run. Take into account that your sales may not be exactly what you predicted immediately. You can, however, justify a greater expense if the rent is taken as a percentage of your sales. It is imperative to do research on the practices of other companies, and the amount of rent they pay compared to the amount of sales their company does. You can justify higher rental costs than the industries average if your location allows for mark-ups in price or an increase in customers and sales, but you are taking a definite risk.

Location Factors In

2008-11-05T09:04:00.000-08:00

Competition
Do thorough research of all competitors in your desired location before making any decisions. There may be very little competition, or many big businesses that could threaten your survival. Look for advertising from these companies around the area. Is there a lot? How about on television or in the newspaper? Take into account the proximity of your competitors and decide whether or you would be able to compete.

Hours of Operation
If you require specific hours of operation for your business to be successful, be sure to verify this with the landlord before agreeing to anything. Certain buildings may be required to be closed at specific times. An ordinary example of this is shopping malls, which more often than not require you to be open doing business at all times that the mall itself is, and that you close when the mall does. If you wish for your business to be open on Sundays, you should carefully check the municipal bylaws in your area, as sometimes they can prohibit this.

Market Trends in your Location

2008-11-02T11:03:00.000-08:00

History of the Location
After you’ve found a location that seems to have everything you’re looking for, always be sure to do further research. After investigating further, you may find that many businesses have previously shut down in this location. There are important warning signs to look for such as many vacant suites in the building or going-out-of-business sales. Also check the buildings adjacent to your location. Are they drawing customers away from your location through better promotions or nice facilities? It is also possible that the landlord is not very agreeable and because of this few tenants are renewing their leases. If the landlord position of the building has changed hands recently this may also be a factor.

Changing Patterns of Neighbourhood
Always factor in the surrounding area of your location. Is it growing bigger all the time or are things closing down? Growth activity shows a trend of an increasing market which will serve you well. If there is a trend of people shut down, it could have an adverse effect on your business in the future. You can always get in touch with the municipal office and inquire as to the current trends in the market in your area.

Shopping Centres

2008-11-02T10:51:00.001-08:00

If you are interested in having a business location in a shopping mall, you need to do some thorough research. What types of tenants are in the mall where your business would be located? Would they draw traffic to you or be in competition with you? Does the mall have many well-known anchor stores that would provide with many potential customers? Are there many well-known department stores, large supermarkets or national chains?

It is also important that you investigate any other malls in the vicinity and compare them with your potential location. How are they similar? How are they different? It is also important to know whether there are any new malls being constructed or planned in the area as this can draw away a good deal of potential customers.

Be sure to look over your shopping centre lease before you sign anything. They tend to be very complex with stringent clauses and specific rules and regulations. Landlords of shopping centres often require a certain percentage of your gross sales as well as a base rent. As a franchisor, it’s important you weigh this financial drawback against the exposure you will receive by being located in the shopping centre. Can you still make a significant profit to make it worth your while?

Walk and Drive-by Traffic

2008-10-29T10:41:00.000-07:00

Consider these factors when thinking about the location of your franchise:

Walk-By Traffic
Does your business require potential customers walking by in order to be successful? If so, is your franchise in a location that provides enough pedestrian traffic for sufficient growth in the future? Will you have to relocate at some point down the road?

Drive-By Traffic
Does the business require a high level of drive-by traffic to succeed? What kind of parking is there near your business? Is it free, or will people have to pay? Underground or by parking meter? If your business serves trade customers or delivers products like to them, then parking may not be an important factor for your company. When does traffic get busy by your business? Just at rush hour? What about during the day and on weekends? Do these traffic patterns keep customers from getting to you?

Location Matters

2008-10-24T17:43:00.001-07:00

For the next week or so, Franchising for You will be presenting posts that highlight important information on finding an ideal location for your franchising business. There are many variables involved including what type of business you are running, what your targeted demographic is and whether you are dealing in retail or distribution.

No matter what the case, it would be hard to overestimate the importance of having a solid location. It is just as important as your product or service and advertising. In some cases, it can be the difference between success and failure. Not only must your location be in a place where your business will be seen by the general public, but you must also ensure that people who will be interested will see it. For example, a skateboarding shop in an area populated by seniors is not going to be very successful.

If you are dealing in retail, it is possible that your location will not be as important as for those in retail. It may even be favourable in some cases to go for a cheaper location to maximize on profits.

Certain retails businesses such as gas stations and family restaurants may require very specific locations (by main highways).

The series will continue with plenty of more invaluable information on how you can get the best location for your franchise!

External Clauses (Quebec Pt. 2)

2008-10-22T12:59:00.001-07:00

The topic for the second post on franchising in Quebec concerns a series of rules set forth by the province’s Civil Code of Quebec which protect franchisees from external clauses. External clauses are clauses in a contract which incorporate documents that are not part of the actual contract signed between the franchisee and franchisor. This includes referencing outside documents, contracts made in an incomprehensible manner or agreements that contain abusive clauses.

One of the most common examples of an external clause is when the provisions of a franchise agreement allude to an operations manual that is not part of the contract. The legislature in Quebec is designed to protect franchisees from being responsible for conditions which they have not read or understood prior to signing the contract. It is common practice for the franchisor to provide an operations manual at the time the contract is being signed. There can be legal complications with this approach though if the manual is particularly lengthy, as it would be hard to prove in a court that the franchisee has actually read and understood it. Some franchisors go to such extremes as giving the manual prior to the agreement being presented, along with a Confidentiality/Non-Disclosure agreement.

The operations manual can be the source of other difficulties as well, since it is not supposed to be a fixed document but rather is designed to evolve over the period of the franchisee’s term. In the Quebec courts, it could be argued that any change to the operations manual is a change to the original franchise agreement. The matter is further complicated by the fact that the courts can not rewrite external, they can either uphold them or declare them null.

Franchising in Quebec

2008-10-20T10:43:00.000-07:00

Franchising in Quebec is quite a different venture from anywhere else. They have very strong laws designed to retain their culture and autonomy. The Charter of the French Language outlines these laws. The charter states that all business contracts must be written in French, including Franchising Agreements. Furthermore, to even do business in the province, you must have a French name. If your name is not French, you must use the French equivalent. The charter also contains specific regulations on advertising of any sort. All advertising put out by your company must be in predominantly in French. You can use English but only to a lesser degree than French.

To summarize, here are the main points to remember about franchising in Quebec:

· All business contracts must be drafted in French
· Anyone doing business in Quebec must have a French name
· All advertising must be predominantly in French

Advertising and Fee Payment

2008-10-14T14:02:00.001-07:00

Pro: Advertising Clout
One of the greatest expenses for any budding business to deal with is the cost of advertising and promotional material. Poorly conceived or inconsistent advertising puts a lot of companies out of the race before they even get off the ground. A good franchisor should be an excellent source of knowledge of advertising, since his entire franchise is kept together by the same advertising. As a result, you have access to the whole franchise’s advertising plan. This security is very useful and your branch to flourish.

Con: Payment of Fees
Franchises are hefty investments. The typical franchisor requires an initial fee upfront of $25,000 to $35,000. This compensates for your being let into the franchise and your initial training. Sometimes, you are required to pay a renewal fee at the end of each term of the agreement. Normally, a term lasts 5 or 10 years and the fee might be around $5,000. This puts a lot of your pressure on your business to succeed right away, which can be more pressure then it can take.

Site Selection and Buyer Beware

2008-10-14T14:01:00.000-07:00

Pro: Site Selection Assistance
A business’ location is one of the most essential factors in its success. Locations in major malls or popular streets can greatly boost the amount of public attention and business you receive. Franchisor’s can be a great asset if they have experience dealing with landlords and developers, often enabling you to open on locations that you would not be able to get independently.

Con: Caveat Emptor
In any business transaction, the buyer should always beware. Franchising is no exception. As a consumer, it is your job to keep an eye open for telltale signs of incompetence or fraud. There is no more common mistake then for new franchisees, wet behind the ears, to make important decisions based more on their enthusiasm and excitement then actual logical reasoning.

Purchasing Power and Misrepresentation

2008-10-14T14:00:00.000-07:00

Pro: Purchasing Power
A competent franchisor is an invaluable resource, providing purchasing power for products, supplies, insurance, benefits for your employees, equipment and advertising. The regular royalties you will be paying to a franchisor are well spent if this purchasing power is at your disposal.

Con: Misrepresentation by the Franchisor
Like all businessmen, franchisors may not always represent themselves honestly to you. Certain fraudulent ones will bend projections of expenses and income to get you to sign on the dotted line. Misrepresentation can also occur unintentionally, when a franchisor hasn’t taken into account the demographics of your location and experience as a franchisee.

Part 3

2008-10-12T07:14:00.000-07:00

Pro: Easier Access to Financing and Reduced Cash Requirements

Financial assistance is often required of financial institutions for franchisees to enter into a franchise agreement. These same financial institutions more often than not strongly favour dealing with those who have a well established track record because it is more secure an investment for them. With an experienced franchisor on your side, it will be much easier for you to get the financial assistance you need. A franchisor can also help with many other financial aspects of your business, reducing advertising and purchasing expenses.

Con: Misunderstanding the Franchise Agreement

It is possible for the franchisee and franchisor to confuse or interpret differently various aspects of the franchise contract. This can result in several problems that can even lead to legal actions being taken in some cases. As a potential franchisee, you have probably never encountered a document like a franchise agreement before. Be sure that the franchisor careful explains all the various aspects of your franchise agreement. Pay special attention to details as this is often where conflicts can arise.

To Franchise or Not To Franchise Part 2

2008-10-11T17:01:00.000-07:00

Here is the second post in our ongoing series.

Pro: A Proven System

Before you enter a franchise, the system to be used is in place. It has been tried, tested and true for many years. The mistakes others have made in the past will not be your mistakes, as the franchisor has already made them and corrected his methods. The methods of operation that you need to subordinate yourself to in order to enter a franchise are there for a reason. They will help you to succeed. Because of this, you have fewer obstacles as a franchisee and more opportunities. This proven system includes all the information you need about initial training, opening assistance, accounting systems, established suppliers, manuals and use of trademarks.

Con: Franchisor's Failure to Perform

Most won’t admit this, but sometimes franchisors don’t live up to what a franchisor should be. There are a number of common scenarios we hear all the time. Most involve a shortage of capital because of:

The franchisor’s unrealistic franchise sales projections
The franchisor underestimating the expenses associated with the development of the franchise system
The franchisor’s failure to meet franchise sales projections
High franchisee attrition

To avoid this type of scenario, make sure you check the past experience of any franchisor you think of going into business with. Check for solid methods of operation that are tried tested and true. If you don’t receive a proven system that deals with specific details, it’s your hint not to do business in this franchise.

To Franchise or Not To Franchise

2008-10-10T10:20:00.000-07:00

Franchising For You over the coming weeks will be doing an ongoing series of posts dedicated specifically to the ups and downs of the franchising industry. Information will be covered that in relevant to our previous, and new information will be also introduced that will be expounded upon in future blog posts. Our goal for this series is to give more relevant information to those who may still be unsure as to whether franchising is right for them. In laying out all the positive and negative aspects, we hope to aid you in making an informed business decision. Each Post will present several pros and/or cons and how they relate to choices you make.

Pro: Reduced Risk

Entering into a business venture like a franchise never guarantees success, but franchising offers a lot more security than other ventures.

Con: Loss of Independence

With this security comes the drawback of reduced independence. It is important to seriously consider this before you enter a franchise contract. Are you the type of person that can work within a rigid system? Can you take orders and subordinate yourself to the greater good? We hear of many instances of people entering into franchises, knowing the methods of operation will be set in stone, only to start fighting for their say in the matter. Being honest with yourself is key here. Remember, a franchise thrives on consistency, and consistency is only achieved through strict compliance from all locations.

The Difference Between Licensing and Franchising

2008-10-03T18:55:00.000-07:00

Many people confuse owning a franchising with the act of licensing, another common business agreement. It is the intent of this post to eliminate this confusion.

Trademark licensing and franchising are similar but business ventures, but the difference lies in the degree of control available to the franchiser or licenser. A franchise is a far more strict and controlled agreement than licensing. In a franchise, the franchisor is actively involved and has control of the franchises methods of operation. This includes the business’ location, the hours of operation and who manages the business itself. This differs from trademark licensing, where the licenser has little if any control over your methods of operation.

Franchising operations are designed to boost the reputation and value of the franchisor’s product or service. A licenser is only hoping to enhance his business by means of increased sales and widespread common advertising, resulting in increased name recognition.

To summarize, if the franchisor or licensor has control only over the product itself, it is trademark licensing. You enter into the world of franchising when you surrender control of the conditions under which the product or service is sold.

Sample Franchising Agreement

2008-10-02T15:28:00.001-07:00

A typical franchise agreement will include:

The parties to the agreement (the name, address and other details of the franchisor and the franchisee, and any other parties to the agreement)
The business structure or format being licensed to the franchisee, which is usually referred to as the “System”. The System typically includes: trade names, trade-marks (e.g. logos and slogans), trade secrets, patents, copyright, designs, procedures, techniques, manuals and the products and/or services which are the subject of the franchise
The length of the terms of the franchise and any renewals or options to renew the franchise at the end of the term
The fees payable by the franchisee to the franchisor, some of which may be one-time fees (e.g., the initial franchise fee), and some of which may be ongoing fees (e.g., a royalty payment, which is generally a percentage of the franchisee’s gross sales)
Territorial limitations on the franchise
Any training and/or re-training requirements
Obligations to abide by the franchisor’s System (and the consequences of failing to do so
Obligations to modify the System at the request of the franchisor
Obligations to introduce the franchisor’s new products and services, and any obligations to cease selling particular products and services
Obligations to purchase products or services from the franchisor or from approved suppliers
Obligations relating to the hours and days of operation of the franchise
Obligations to advertise or promote the franchise locally or regionally, or to contribute to the franchisor’s advertising or promotional program
Obligations to participate in special promotions (e.g., to redeem promotional coupons)
Obligations regarding the maintenance of financial records, and any obligations to make these records available to the franchisor
Obligations to insurance policies
Restrictions on the sale of the franchise by the franchisee
The methods by which a franchise may be terminated by the franchisor
Continuing obligations on a franchisee after termination or expiration of the franchise agreement

Be sure you review your preferences and flexibility concerning all these subjects before signing any contract.

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Franchising Agreements

2008-10-01T19:18:00.000-07:00

Before you even think about entering into a franchise, you need to understand the type of agreement or contract you will need to enter into. The franchise agreement is a contract entered into between the franchisor (you) and the franchisee. It outlines the conditions and relations between the two parties. Usually, it will appear biased towards the franchisor, in order for them to maintain control over their franchise. Remember, the franchisor is literally risking its entire name and reputation on your performance, or lack there of. This is why he (or she) is able to place obligations and conditions on you. Franchisors are looking for consistency throughout their franchises. It is essential for them to succeed. In order for this to happen, you must obey their rules and regulations.

Contrary to what the previous paragraph might have you believe, or what others may tell you, there is in fact no standard franchise agreement. No two are alike. This makes sense because the idea of a franchise itself is very malleable and covers a lot of ground in the business world. Industries of all sorts have franchises and each will have different interests and conditions for you to follow. It is also vague as to what degree the franchise agreement is negotiable. Some will say they are mostly non-negotiable, while others interest there is room for compromise. However, most agree that the location, exclusive territory and opening date are always negotiable, so as a franchisee, take advantage of this freedom if you have it. The more established a franchise is, it’s fair to say the less freedom you will have.