When you consider starting a new business, to buy a franchise is often the right option.
What are the advantages of buying a franchise?
When you buy a franchise of a well-known brand, you get an advantage of such brand having an established brand recognition which helps reducing the franchisee’s marketing expenditures. Additionally, a proven and profitable concept is a safer investment for franchisees who are looking for faster return on their investment.
Moreover, franchisors are contractually obligated to provide ongoing training and support to their franchisees for as long as the franchise relationship lasts. On the other hand, because the franchisor owns the brand, he has the right of significant supervision over the franchisees’ operations and marketing activities to protect franchisor’s brand name. This supervision implies that, as a franchisee, you have less control over management of your business than if you were an independent business owner with no ties to a franchise.
If you are a well-performing franchisee, it’s likely that your franchisor would reward you with the option to enter into an area development agreement, multi-unit franchise agreement, or master franchise agreement. In Isabel Yague’s experience as a Miami franchise lawyer, successful franchisees who enter into such advance agreements with their franchisor usually expand their business and multiply returns quickly.
If you are considering buying a franchise, your franchisor must provide you with a copy of their Franchise Disclosure Document or FDD. The FDD is required by the Federal Law. FDD is a comprehensive and extensive document which describes in detail the characteristics of the franchise and franchise model as well as franchisor’s entity and financials.
Miami franchise lawyer Isabel Yague always recommends franchisees to have an experienced franchise attorney review the FDD and franchise agreement and advise you on the contractual terms which represent risks in your relationship with your franchisor before you sign the FDD and the franchise agreement.
Also, before buying a franchise business, we recommend that you do extensive due diligence study of the business, the brand, the market, and your potential competitors. To help you with the due diligence, you should hire a CPA to study the franchisor’s financials described in the FDD and advise you whether the franchisor seems to have a good financial track record. Moreover, you should carefully evaluate the initial investment section of the FDD and the economic terms of the franchise.
Finally, as part of due diligence, you should contact other franchisees of the brand (their contact information will be included in the FDD), visit their locations, if possible, and discuss their experiences with the brand with them.