Is Franchising for You? – Determining What the Franchise Package Contains
After gathering all the information you will need to make an
informed purchase decision, carefully examine this information
with your attorney, accountant or business advisor ensuring that
it is addressed in the franchise contract. Think carefully about
the level of independence you will maintain as a franchisee and
how comprehensive the operating controls will be. Be very clear
about the cost of purchasing the franchise and the documents that
make up the franchise package.
You can obtain information on franchising from: 1) a directory of
franchises, 2) the disclosure document, 3) current franchisees,
4) other references, such as SBA, FTC, Better Business Bureau,
local chambers of commerce, 5) professional advisors and 6)
reference materials on franchises from the local library.
Your franchise package should contain the following information:
* The full initial costs and what they cover.
* Licensing fees.
* Land purchase or lease.
* Building construction or renovation.
* Starting inventory.
* Promotional fees.
* Use of operations manuals.
* Continuing costs related to the franchisor.
* Ongoing training.
* Cooperative advertising fees.
* Interest on financing.
* Requirements regarding purchasing supplies from the
franchisor, and if the prices are competitive with other
* Restrictions as they apply to competition with other
* Terms covering renewal rights and resale of the franchise.
In reviewing the franchise contract with your attorney,
familiarize yourself with the language. Be aware of terms such as
hold harmless clauses, integration clauses and choice of venue or
choice of law provisions. These terms may favor the franchisor
over you if improprieties arise during or after the settlement
Hold harmless clauses – may require that you release the
franchisor from specific acts or violations of state laws.
Integration clauses – may prevent you from successfully
suing for any deceptions preceding the signing of the
Choice of venue or choice by law provisions – are especially
important if the franchisor has headquarters in another
state. These clauses may dictate that you settle all
disputes in your franchisor’s state of residence and settle
your claim under laws favorable to the franchisor.
Other important clauses to consider deal with severance, renewal
and transfer of the franchise.
Again, use professional help when examining the franchise
contract. And, remember some of the contract terms may be
negotiable. Find out which terms are negotiable before you sign;
otherwise, it will be too late.
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