While the website Statista reports 753,770 franchises were operating in the United States in 2020 (with McDonald’s and 7-Eleven ranking one and two revenue-wise), Entrepreneur magazine’s 2022 Franchise 500 Ranking lists Taco Bell and the UPS Store as the best opportunities for new franchisees.
Proposal would reduce fraud in franchising and level the playing field for franchisors and franchisees.
The North American Securities Administrators Association (NASAA) recently released for comment a proposed Statement of Policy on questionnaires and other disclaimers in franchise documents. The deadline for comments is January 5, 2022.
In 2020, according to the website Statista, there were 753,770 franchise establishments in the United States, employing 7.49 million people. Under a franchise agreement, a franchisee can utilize the franchisor’s business model and ideas.
For a prospective franchisee, one of the best ways to learn about a franchise is to talk to current franchisees. Franchisors are required to list current franchisees and franchisees who have recently left the system in the Franchise Disclosure Document. Before purchasing a franchise, a prospective franchisee should contact as many current and former franchisees as possible.
If you are considering buying a franchise, you should beware of boilerplate disclaimers. They come in many forms. Some are buried in the fine print near the back of a thirty-page franchise agreement. Many are duplicated in a separate document back near the receipt in the FDD.
It was inevitable. The franchise sales engines have been spewing speculative claims about what we might call “pandemic opportunities”. The story is that many restaurants (estimates range from 3% to 50%) will close permanently because of the pandemic and the corresponding recession.
If you decide to go into business with a friend or family member, you should think twice and then get your deal documented better than you would need to with a stranger.
Finding oneself unemployed during 2020’s combined recession and pandemic and watching your savings get rapidly depleted, it is normal to start looking for alternatives to replace your income.
As franchisees try to navigate through the COVID-19 crisis, one more thing to beware of is “help” that comes with strings attached. Many, if not most, franchisees are behind on bills, including royalty and fee payments to their franchisor. Many of those will receive an “offer” from their franchisor that they will “defer” some of the fees until later—if you will just sign this “standard form” agreement.
