The tale of franchises reminds me of the opening of a famous book: they can be the best of businesses and they can be the worst of businesses.
If you, as a business leader, are thinking of getting into owning a franchise this article is for you. If you are a business owner and want to add a franchise in the future this article is for you. If you think you want to build your skills and someday own a franchise this article is for you.
Franchises can be really good and they can be really bad. I’ve had clients with both experiences.
And in most cases the devil is in the details.
Let me give you so thoughts on franchises so you can think a little deeper. This will also give you some ideas if a franchise is for you.
Point 1: It’s Their Brand, Not Yours
There are legal tests out there to determine if, under law, a business relationship is a franchise.
And sometimes folks are surprised when relationships they didn’t think were a franchise turn out to be a franchise. The law can be sneaky that way.
Generally, under federal law (and there can be other state laws) you have a franchise when there is: (1) a trademark/branding in use, (2) control/assistance, and (3) fees or payments (here’s the federal law which as been grossly oversimplified for this article).
If you look at those 3 tests you’ll find a lot of relationships might accidentally back into being a franchise.
But those tests do point to what is often key in a franchise – trademarks/branding in use and control/assistance.
Basically it’s their brand to manage and they are going to tell you how to manage it. No matter how good of a franchise you are you won’t be controlling the brand.
Point 2: You Aren’t In The Driver’s Seat
Because of this control element you aren’t the driver. You are the passenger.
Many franchisees have been upset to learn that the rules change on them sending them back to the drawing board. Sometimes rules changes can lower traffic to your franchise, lower or eliminate profits or cause other issues.
A big part of being a business owner is being in control. It means a lot of responsibility and stress. It also means you get to make the changes to make your business win at business.
Except in franchises you may not be able to make those changes to win. You might have to lobby the franchisor – often with limited success – to make changes.
So if you are looking at the franchise game remember who is in control. It’s not you.
Point 3: Some Franchises Are Really Good
With all of the challenges of franchises we opened with the truth is that some franchises are really good.
And a good franchise will move you a long way to your goals.
Some franchisees find it’s much easier to jump into a business with the leadership of someone whose been there.
Add to it that some franchisors have set-up offers that pave a path to quick profitability. Hitting the right franchise opportunity at the right time can be like striking gold.
Point 4: A Good Franchise Can Save You A Lot Of Work
Systems and processes are a key to business. They are also very difficult and costly to establish.
Your franchisor may have done all of that work for you. If the price of entry is low enough you might be able to ride those coat-tails for low cost.
You also, typically, get market research and operational know-how from your franchisor.
Rather than testing you might be starting your business on a different footing – proven!
So think about the amount of work you might save and whether that offsets some of the challenges of being a franchisee.
Point 5: The Goodies in the FDD
So when it’s time to possibly invest in a franchise you’ll get to see the FDD – Franchise Disclosure Document.
There’s a lot of law that goes into what needs to be in there.
The long story – shortened – is that the franchisor must tell you certain things. So you can really get into the information.
You, your advisors, and your lawyer should be reading this document with great interest.
Look at all the hidden details, with a fresh review and careful analysis of the business deal.
Does this make sense for you? Often reflection and thought on the FDD will lead you to the right decision.
Bonus Point 1: When To Negotiate
Despite most franchisors attempting to have a “take it or leave it” attitude there really is some room for negotiations – particularly if you are helping and new franchise or helping a franchise open a new geography.
Use your leverage for all it is worth. The key is to get the concessions up front.
Bonus Point 2: Some Key Negotiation Points To Consider
Look at how all the pieces fit together. Look at what geography you control. Look at how marketing dollars are spent.
If there is enough interest I’ll do an article just on this.
What To Do Now
You now have the power. Take your time in franchise negotiations and pick the one that really works for you.
It’s like everything else. Take your time and get it right.
DISCLAIMER: This article talks about legal issues. I am a lawyer licensed in multiple US jurisdictions, but I am not your lawyer unless we have signed an engagement agreement. Please view this material as educational and general in nature (as it is). Consult counsel you have retained for advice on your specific facts and circumstances and applicable laws. Do not rely on the statements in this article as legal advice.
By: The Our Shawn McBride, is the business nerd and long-time business attorney that focuses on changes of ownership in businesses. He works with business owners that know their business is about more than themselves to get ready for their future through keynotes, training and personalized solutions. In furtherance of this he hosts The Future Done Right(TM) Show where he collects, digests and gives lessons and insights on The Future of Business. If you want regular content on the future of business subscribe to get new blog posts from us here.
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The Our Shawn is based in DeLand, Florida (between Orlando, Florida and Daytona Beach, Florida) and Dallas, Texas where he keeps offices. You can also find Shawn on webinars or traveling nationally or internationally for speaking engagements.
Check me out at: www.planningdoneright.com
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