FAQs About Becoming a Franchisee
Sept. 30, 2022
In 2021, after a dip during the COVID-19 lockdowns and economic slowdowns of 2020, the number of franchise businesses in the United States rose back up to its near-historic level of 800,000. The economic output of the franchise industry reached about $790 billion for the year, and employment stood at about 8 million people.
Unsurprisingly, the largest segment of the franchising industry is quick-service restaurants, bringing in about $241 billion of the franchising total. The next largest segment is franchises offering business services, with about $121 billion of the total.
The allure of owning and operating a franchised business and leaving behind the 9-to-5 daily work grind — in which you have to follow the directions and dictates of others — can be quite strong. Plop down some savings, get trained on operating the business, open your location, and you’re off and running.
But is it all that simple? If 9-to-5 gets you down, how about 7-to-10, as in morning to night? Though that might not be exactly what your business will require, without your personal dedication and attention, your franchise baby might never take its first steps.
Before you take the plunge into owning and operating a franchise in or around the greater Seattle, Washington area — or throughout Oregon, Texas, Florida, and across the United States — contact the franchise attorneys at the Bundy & Fichter PLLC.
The firm has decades of experience in helping those with an urge to own a franchise evaluate what’s available, weigh their options, and put a plan in place that will help ensure the best result possible once their franchise is up and running.
Frequently Asked Questions
About Becoming a Franchisee
Over the decades, hundreds of adventurous and ambitious individuals just like you have looked upon owning a franchise as a means to be in business for themselves and enjoy the benefits of being their own boss. Bundy & Fichter PLLC helps them see both the ups and downs of franchising and to weigh whether it’s right for them.
Here are some of the questions the team routinely encounters, along with brief but focused answers:
What Are The Benefits of Being a Franchisee?
Many think of a franchise as being nearly a “turn-key” operation. You get the benefits of a name-brand product or service. You are trained on how to promote and sell that product or service, and you inherit a system of operations that has been perfected and proven by the franchisor.
The franchisor may help you advertise and market your product or service, and you may enjoy the benefits of business ownership without the trial-and-error period of entrepreneurs who set out on their own.
What Are The Potential Drawbacks?
If you take a closer look at the “small fee” to purchase the franchise, it’s not always that small — and in many cases, neither is the royalty you’re required to pay monthly out of your profits. And the training you’re provided can be quick and cursory, or even consist simply of an operating manual provided to you, if that.
You’re likely also to be stuck dealing with vendors approved by the franchisor, and at their mercy should they decide to raise prices, or as has recently happened, supply-chain issues arise and your product arrives late. Another common practice you may encounter is vendors who pay kickbacks to the franchisor, resulting in your cost of goods being higher than your competitors.
In addition, the franchisor may ask you to share in the costs of advertising and marketing, and even make you pay for training and an upgrade to the software and/or hardware used to run your business. Perhaps most significantly, your creativity will be discouraged and curtailed. You’ll be expected to stick to the system in place as developed and approved by the franchisor. At the end of your franchise term, you will not be offered a renewal of the same agreement. You will have to choose between either closing the doors and walking away with nothing or signing whatever agreement the franchisor demands, which may have more restrictions and higher fees. You may even be required to spend a large amount of money remodeling the franchise premises or buying new equipment and fixtures.
What Are Common Franchising Terms & Conditions?
The franchisor will lure you into his or her business by providing you with a Franchise Disclosure Document (FDD), which is required by the Federal Trade Commission (FTC), the regulatory agency for franchises and their operation sales. The FDD, depending on the franchisor, can be detailed and realistic, or simplistic and not that transparent. It may sound good but what does it really mean? Look carefully at the FDD and especially Item 11 to determine what legally enforceable promises the franchisor is making.
When deciding to sign on and open a franchise, another legal document will be presented to you, called the franchise agreement. This document covers the nitty-gritty of what you should expect. It will spell out your start-up costs, ongoing royalties, marketing and advertising obligations, your rights to sell your franchise should you so desire, and more. This document should be carefully vetted by a franchise attorney before you sign it.
A franchise agreement will also have an end date, at which time the franchisor could decide that you no longer deserve a franchise. Perhaps they’ve found someone else to take over, or you’ve been too much of a thorn in their side. In other words, your franchise might not be forever. Make sure there are terms in the agreement that make renewal mutually negotiable. Some state laws limit the franchisor’s ability to refuse to renew a franchise. You should be aware of any that may apply.
What Should You Do Before Buying a Franchise?
Simply put, do your research. Attend franchise conventions and talk to franchisors and franchisees who may be there to get a clearer picture of what each franchise really entails — and where it may be found wanting.
Visit local franchises and talk to owners if you can. Read everything you can find, searching, especially for negative comments and reviews. Once you’ve done enough research and focused on a particular type of franchise that interests you, contact a franchise attorney to help you further your pre-purchase research.
What Are the Steps Involved in Buying a Franchise?
The first step, as outlined above, is to do your research. The next step is to look inward and examine whether you have the skills and fortitude that it takes to successfully operate a business that someone else has designed and who will continue to have the final say in how you go about running your franchise. If you like your freedom and creativity too much, a franchise may not be for you.
Other things to consider before writing your check to get started are to review possible locations, the parent company’s profit and loss (P&L) statement, the franchise’s established customer base, the industry represented, and the potential competition — especially in the locale where you wish to operate. Look at whether the brand has real value for you—do your potential customers immediately think of the brand when they need the goods or services you would be offering?
Do You Need an Attorney’s Help?
The answer here is absolutely yes. You don’t want to fork out tens of thousands — or hundreds of thousands — of dollars to someone else for the privilege of operating their business as they dictate. You’ll need an attorney to not only review the FDD but also — if you’ve gotten that far — the proposed franchise agreement. You want to make sure your rights are honored, and that it’s not going to just be a one-way street.
Experienced Guidance You Can Trust
Though the above answers all convey a cautionary tone, the point is to conduct due diligence to make sure you know exactly what you’re agreeing to and that it represents an opportunity you can readily embrace.
Let’s face it: If you acquire the right franchise, you might be set for life financially, but you need to make sure that the franchise of your choice is everything you think and hope it will be. The franchise attorneys at the Bundy & Fichter PLLC can help you evaluate your franchise choice and advise you of the legal terms and conditions that you’re agreeing to. This is an important consideration. Business people aren’t necessarily accustomed to reading and understanding legalese. Most attorneys do not know how to analyze an FDD and franchise agreement. Let skilled franchisee attorneys explain everything for you, so you can rest assured moving forward.
Reach out immediately for a free consultation when you are ready and serious about acquiring a franchise. Bundy & Fichter PLLC can guide and advise you on the ins and outs of the industry.