Franchisees: What you need to know!

Signing up for a franchise is an exciting process! As a franchisee, however, there are a few very important things you need to know about.

The UFOC

The UFOC is a document that the franchisor must present to you if you are seriously considering purchasing a franchise. It contains extensive information about the franchise. In addition, you should be provided with completed contracts covering all material points at least 5 days prior to the actual implementation of the documents. This period of time gives you the opportunity to review the contracts with a lawyer and provides a period of time to make sure your decision has been rational.

Earning potential

Before actually owning a franchise, many potential franchisees want to know how much they will earn. The franchise company must decide whether or not they want to estimate the amount of money a franchisee will make. If they do choose to make an estimate, they are required to provide documented proof that most of their franchised locations are that successful. You can find out if the franchise you are interested in has an earnings claim by looking at their UFOC. If the franchisor states that you will earn a large portion of money but does not provide any proof to back that statement or an actual monetary amount, they are bluffing.

Franchise or business?

Many may ask: Why a franchise? Some may think that it would be better to open their own unique business. The fact is, during economic hardships, the franchise industry always prospers. It has been researched that franchise businesses are exponentially more likely to succeed than individual new start-ups. After 7 years, 91% of new franchises are still in business, as compared to only 20% of individual new start-up businesses. The truth is people want familiarity. They know that the quality will be the same wherever they are when they use the products and services of a specific franchise. A franchise is a smart choice for the prospective business owner who wants to succeed.

Negotiating the franchise agreement

Are you able to negotiate the franchise agreement with the franchisor? This all depends, of course, on the franchisor. Some will not negotiate anything whereas others may negotiate everything from price to décor. This is a situation that requires an excellent franchise lawyer to sit down with you and go over every detail of the agreement you are planning to sign. Do this before you deicide to purchase the franchise.

Speak to other franchisees

It is important that you speak to other franchisees when wanting to purchase a franchise. Get in touch with former franchisees to find out why they left. It is required that the franchise agreement lists all franchisees, so names will be available to you. Choose a diverse range of people and ask plenty of questions. The more answers you receive, the better.

Obtaining loans

If you are having problems with obtaining a loan, there are SBA loans that are easier to receive, if you meet the SBA’s special criteria.

How the franchisor makes money

A franchisor sells the right to a franchise for an initial fee known as the “franchise fee”. This fee does not include the additional costs associated with opening a franchise unit. The franchisor will often receive ongoing payments taken as a percentage of sales, such as royalty fees. Many franchisors also sell supplies and/or services to their franchises.

Borrowing money from family

There is nothing wrong with asking friends and family for financial help. Borrowing from family is a common practice and you will probably want to give friends and family some equity in your franchise. Remember, family members may be invasive and if the franchise business fails, there may even be hard feelings. However, if you know that you can handle these factors it may be the right choice for you.

Ongoing training

Training never ends and should never end! You should expect your franchisor to provide you with ongoing training, information on new products, equipment and techniques for running your business. You have paid for these services so make sure you get them. They are very important as it will make it easier for you to run your business.

Termination of franchise agreement

You may decide to terminate or just not renew your franchise agreement. Can you do this? Well, it all depends on the terms of the specific agreement and the extent to which the franchisor and franchisee have complied with the agreement. If your franchisor is not delivering all components of the franchise program as promised, you may have the right to terminate the contract. In addition, the franchisor has the right not to renew your contract if they are not happy with the way you have run the franchise business.

Communicating With Your Franchisor

Communicating with your franchisor is very important. The relationship that exists between a franchisee and a franchisor is complicated and intense. Therefore, communication is essential.

The Federal Trade Commission’s Franchise Rule

This rule requires that covered franchisors supply a full disclosure of the information a prospective franchisee needs in order to make a rational decision about whether or not to invest. If they do not, speak up!

These are helpful tips that you need to know. All tips will aid in the criterion of making the right decision.

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