Business Transactions

What You Need to Know Before Buying A Franchise

If you’ve ever come across a commercial for the local burger joint, or seen an ad on TV for the cleaning service down the street, and thought “I could do that”, now might be the time to start. But before you go it alone, learn about all of your options with franchising. The more you know going in, the safer your investment and livelihood will be long-term.

What Is Franchising?

A franchise is basically a legally binding agreement between one business owner (the franchisor) and another (the franchisee). As part of this relationship, one company will provide training and support to help run the other’s business more successfully. In exchange, they will gain regular access to their customers. Essentially it means that if someone buys into McDonalds or Subway, for example, they’re going to have a lot of help with getting started.

How Does It Work?

When you buy a franchise for a certain business, you become part of the parent company’s team. You get your own local “store” or office and can run it as you see fit within a given set of guidelines from corporate HQ. To open up shop, most franchises require an initial fee of about $20k-50k (sometimes more), plus ongoing royalties of around 5% of sales. In some industries this percentage will vary based on how many units are sold in that particular market, but this is rare. For more information on fees and costs associated with specific businesses, consult their individual franchise. Keep in mind that not all franchises are alike, so it’s important to do your research before getting into something you don’t know much about.

Who Can Franchise?

Anyone who has the start-up costs and time for this kind of business can buy into a franchise in most instances. There are very few restrictions on this type of arrangement, but some companies require that their franchise owners have some experience in the industry they work in, especially when it involves business licensing. For example, if you want to buy a seasonal ice cream franchise, you’ll need more than just capital. You’ll also need an entrepreneurial spirit and at least some experience working with food service businesses.

What Are the Benefits of Franchising?

When you buy into a franchise, your business becomes part of a larger network. This means that if you have any problems or questions related to the industry in general, you can get access to experts at corporate HQ who can help with everything from local marketing campaigns to finding suppliers. It not only saves time and money on research, but allows for expansion of your brand more easily because you’ve got legal rights to sell the products or services associated with the parent company’s name. Before going all in on a new franchise, it is best to make sure to cover the specifics with an attorney. Reach out to us here at Bell Shah Law if you want us to discuss franchising a business with you.

 

Tyler Murphy

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