Is Operating a Franchise for Me? Here is the Checklist



Is Operating a Franchise for Me? Here is the Checklist 
By Barry Kurtz, Esq.
Certified Specialist in Franchise & Distribution Law
Edited by Gary Wartik
March 3, 2014

Introduction –

Franchises have become an important way of life in the business world. Whether one is eating in a restaurant, calling the local plumber, eating a hamburger out, staying in a hotel or enjoying ice cream at the local ice cream parlor, one is likely dealing with a franchise. It has become the way many Americans go into business for themselves.

This month we are pleased to offer a guest article from one of Southern California’s foremost legal experts in the field of franchising and the laws that govern them.

Franchisee or Independent – The choices is yours

If you’re like many others who find themselves “in transition” as the recession drags on, you may face a stark choice – whether to downsize your lifestyle and your ego in some unfulfilling job or, in the alternative, start your own business.

If you do venture out on your own and succeed, you may come to see your choice as the best move you ever made, and if your business fails, you may see it as the worst. Either way, the decision to launch a business is highly risky, and you will give yourself a leg up if you assess and manage the risks with care.

How? Many entrepreneurs do so by joining a franchise system instead of creating a new and independent business. In doing so, they gain many advantages, including a proven business model and a recognized trademarked product or service, along with training in the essentials of running a business.

But you need to know the basics of franchising if you are to succeed. A franchise is a business relationship between the owner of a trademark, the franchisor, and the operator of a venture utilizing the trademark, the franchisee such that:

• The franchisee must offer, sell or distribute goods or services under a marketing plan or system controlled in substantial part by the franchisor, and

• The business must be substantially associated with the franchisor in the eyes of the public and the franchisee must directly or indirectly pay a fee to the franchisor for the right to engage in the business.

The relationship gives you a greater chance to succeed through:
• A proven business system, a customer base, a known brand name and market presence.

• Group purchasing, professional marketing, research and development, and continuing education and training.

• Support from your franchisor and other franchisees with similar goals, needs and pressures.

On the other hand, franchising is not a bed of roses. For one thing, you won’t be running an independent business. Franchisors want followers, not innovators, and they limit how much you can deviate from their operating procedures.

For another, buying a brand-name franchise is often more costly than launching an independent business. Generally, franchisees must pay upfront franchise fees plus ongoing royalties and sometimes fees for training and advertising. For that matter, not all franchisors offer much in the way of training, guidance and services for the success of a franchise.

What sort of franchise is best for you?

To answer that question is to take a journey inward, because the path you take depends in great measure on who you are and what you want to accomplish. Here are five things to think about as you take that journey:

• You will greatly enhance your chances of success selling products or services you understand. Don’t jump into something completely new and different.

• Consider your strengths and weaknesses. If you’re happiest when following orders, resist the idea that you can become a leader overnight, just by buying a franchise. On the other hand, if you insist on going your own way at every turn, how long will it take before you chafe at the follow-these-steps-if-you-want-to-succeed nature of the franchising industry?

• Follow your passion and step carefully. You need to be committed enough to your enterprise to make success your only option, but the enterprise itself must have the potential to succeed. You may love your collection of antique whale-oil lamps, but going into the whaling business won’t get you far.

• It’s your money. Invest enough of it to keep you keenly aware of what’s at stake, but don’t throw everything you have at the venture. Be realistic about the costs of becoming a franchisee and buy a franchise that matches your resources.

• Keep your antennas up while you do due diligence. Learn everything you can about your franchisor’s record, and talk to every other franchisee you can track down.

Above all, at every step of the way, ask yourself whether the people you meet – your franchisor, the people in the home office who will be your primary contacts, and other franchisees – conduct themselves as you would. This goes beyond mere compatibility; if you are to succeed as a franchisee, you must buy into the franchisor’s vision, but the character of the people you will work with must match up with your own.

For years, Vision Economics has worked with franchise operators that have included air conditioning and heating companies, ice cream parlors, print shops, restaurants, dry cleaners and plumbing companies. For further information, please contact Vision Consulting at 805-987-7322, or Mr. Kurtz at the law firm of Lewitt-Hackman in Encino, CA, at 818-907-3006 (bkurtz@lewitthackman.com).

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