Today, hundreds of thousands of franchises are located throughout the United States. These may be businesses such as restaurants, hotels, dry cleaners, hair salons, and health clubs. If you are thinking of opening a franchise, there are some key issues to consider beforehand. Here is what you need to know before investing in a franchise:
What is Franchising?
Franchising can be an exciting way to start a business. The franchising relationship operates as follows:
- The original business owner (franchisor) develops the business, its model, and operations.
- The other party (franchisee) pays a fee for the right to open their own locations using the franchisee’s name, product, services, and business practices.
- When the franchisor and franchisee enter into a franchising agreement with each other, the franchisee can step into the franchisor’s established business framework and open their own location of the franchisor’s business.
Investing in a Franchise
When you invest in a franchise, you are essentially stepping into a role with an existing business. The franchisor designs the business, its practices, and branding. While the franchisee pays a franchising fee and enters into an agreement to open their own location of the business.
How Much is a Franchising Fee?
Franchising fees will vary by business. Some may be as low as $10,000, while others are $100,000 or more. Depending on your agreement, you may also have to pay other associated costs. These may be for a licensing fee or advertising. You could also be required to use and pay particular vendors . For example, if you own a McDonald’s franchise, under your agreement, you may have to use a certain vendor for materials.
Understanding How the Business Operates
You may have developed an interest in acquiring a franchise location after being a client or customer. This can be a great initial step towards becoming a franchise investor. However, before taking the next one, you will want to do your due diligence. This will mean learning how the business operates. Additionally, the franchisor may require a franchisee to have some demonstrable knowledge or expertise in the industry.
Franchisors also often want to evaluate the franchisee’s business plan. Others may require a franchisee to attend specialized training . Learning about these and other franchising requirements beforehand is a good idea. It can help you assess whether you and the franchise are a good fit for one another.
Understanding the Costs and Requirements of Franchise Investment
As indicated above, the franchising fee can be anywhere from $10,000 to $100,000 or more. In addition, a franchisee may also have to pay additional costs under the agreements. Aside from the funds a franchisee will have to pay upfront, there may also be a requirement that they have a certain amount of money. For instance, Dunkin’s capitalization requirements vary by market, but the company requires a franchisee to have a minimum of $250,000 in liquid assets and $500,000 minimum net worth per unit.
In addition to the upfront fees, you will also need to consider the expense associated with the franchise. Acquiring the building, land, or location site and purchasing the necessary supplies to begin operations can be costly.
Do You Want to be on Your Own?
Franchise investment may require that the franchisee be very involved with the business . A solo investment can mean realizing more significant returns. However, there may also be a benefit to investing with others. When you co-invest in a franchise, you can share labor costs and other expenses You will need to consider how you and your co-investors will share operational expenses and responsibilities.
Considering Your Franchise Staffing Needs
As a franchisee investor, you will also need to consider whether you can operate the business with or without employees. If you do need employees, how many? Will you require an accountant? Management services? Human resources? Considering your staffing needs is an essential part of planning for your franchise investment.
Understanding the Franchising Agreement
When you become a franchisee, you will be committing to the terms of a franchising agreement. Franchising agreements are not uniform, and they can vary widely from one another depending on the business and its location. Depending on the contract, there may be numerous limitations on how you can operate your franchise location.
As with any legal device, it is imperative that you properly evaluate and understand each term of your franchising agreement before signing. Therefore, it’s crucial that you work with an experienced business attorney who can help you review and evaluate your contract. In addition, your lawyer can discuss the franchising agreement’s terms and help you determine the best ways to protect your interests.
Investing in a franchise can be a fantastic business opportunity. However, it’s essential to have all the facts before moving forward with this type of venture. If you are considering investing in a franchising opportunity, you should consult with an experienced Florida business attorney. Your business lawyer can provide you with the information you need to evaluate your potential franchising investment.
Contact an Experienced Florida Business Attorney
Attorney Richard Sierra at the Florida Small Business Center assists clients like you with business and litigation matters. As always, Our Goal Is to Help You Succeed™. For an appointment, you may call us at 1-866-842-5202 or use the contact form on our website. We represent clients throughout the State of Florida, including Coral Springs, Coconut Creek, Boca Raton, Delray Beach, Pompano Beach, Sunrise, Fort Lauderdale, Miami, West Palm Beach, Jupiter, Deerfield Beach, Stuart, Port St. Lucie, Orlando, Naples, Fort Myers, Sarasota, Tampa, and surrounding communities.