Buying a franchise is a great way to start a business that already has a reputation. When you enter into this type of agreement, the franchisor offers their well-known products or services, and you, the franchisee, get to operate under their name. Before you enter into an agreement with anyone, you have to ask a few questions. Work with a business attorney to make sure you follow the letter of the law and enter into an agreeable contract. What follows are a few common questions you should ask the franchisor before making an agreement.
Figure Out Cost
It is important you and the franchiser are on the same page when it comes to the cost and payments for the franchise. You should ask
- What is the initial franchise fee?
- What does that fee purchase?
- Is the fee refundable or nonrefundable?
- Can the payments be made in installments or is a lump-sum payment required?
- Is there financing available?
- Does the franchiser require periodic royalty payments? If so, how often and how are they calculated?
- Are accounting services provided?
- How are the advertising costs divided?
- What services does the franchiser provide?
- Is the franchise premise obtained through purchase or lease?
- What sort of down payment is required for the franchise premise?
- How much are the rent payments for the premise and when are they due?
This information will help you know whether the deal is good for you or not.
Some franchises only operate within a certain region. You need to make sure the franchise is an option for the area you want to operate in. You should ask the following questions:
- What geographic area is covered by the franchise?
- How far away is the nearest existing franchisee in the same franchise?
Are there other franchises planned in the same geographic area in the future?
- Does the franchiser or the franchisee select the location for the new franchise?
- Is the franchisee able to use his or her own property?
- If the premises require new construction, who determines the plans and specifications?
- If the premises require new construction, who supervises construction and works with the contractor and subcontractors?
- Are there restrictions on and specifications for the appearance of the building?
- Does the franchiser provide property insurance?
- What are the franchisee’s responsibilities relating to any necessary remodeling? Are there restrictions to remodeling?
You have to understand the location and building restrictions before you can know if this is a good opportunity for you.
Discuss Operating Terms
You also want to make sure you come to an agreement regarding the operation of the business. To do this, you should ask
- Do the equipment and other supplies have to be purchased from or through the franchiser?
- What sort of control does the franchiser maintain over day-to-day operations?
- Is the schedule of operation, such as hours and days of operation, dictated by the franchiser?
- Are the products and services strictly controlled by the franchiser?
- Does the franchisee have to remain personally involved in the running the franchise, or can that be delegated to store managers?
Asking these questions early in the process will ensure you get the type of business arrangement that is best for your situation.
Look to Other Considerations
There are a few other points you want to make sure are considered. You should ask questions about training, termination conditions, renewal conditions, extreme situations such as the death of the franchisee and other details about the franchise. It is important you understand the history of the franchise to make sure it has the reputation you desire. You can ask:
- How long has the franchise been in business?
- How many total franchises are there currently?
- Are the current franchises financially successful?
- How long did it take these franchises to become profitable?
- Has the franchisor ever had trouble with state and federal regulations?
Make sure to work with your business attorney so you ask all of the right questions. This is a potentially long-term agreement that should be just right.Legal Disclaimer
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.