Franchises, for example, are supervised by the Federal Trade Commission (FTC) in the United States. Why is this? Because franchising is responsible for a substantial portion of business growth in America! In a relatively short period of time, it has grown from a fad to an enormous industry. More than 10 percent of businesses in the U.S. are franchises.
There are both state and federal laws that govern franchising. To find out what is permissible in your area, you must contact a franchise law firm. Do not attempt to negotiate a deal on your own. Franchise law is extremely complex and changes from time to time. Only franchise attorneys who focus on this one particular field of law are qualified to provide professional advice and assistance.
When to call them?
If you want sell, open, or resell a franchise, you must abide by your state’s franchise laws. It is for this reason that some franchises only operate in certain states. A few states have incredibly complex laws that make it difficult to open or sell a franchise.
What you need to know
When you buy a franchise you will always surrender a certain amount of creative control. The franchisor may have the right to choose the location or site of the franchise as well as the menu or available services and the hours of operation. The franchisee must follow these rules if he wants to sell under the company’s name.
The good news is that franchises are generally more stable than startup businesses. The top franchises have failure rates in the single digits, which is far lower than the national average for new businesses. There are several obvious explanations for their relative success. The most salient one is that they have a winning business model that can be mimicked by companies from coast to coast. They also have a brand name, which means they provide their franchisees with a built-in customer base.
Every sentient earthling can recognize the golden arches. In other words, they know what to expect when they walk into a McDonald’s. It doesn’t matter if they’re in San Francisco or St. Petersburg they know they can get the same products at similar prices. That is the power and appeal of franchising€”consistency.
There is no doubt that franchising is one of the fastest and most profitable ways to expand your business. But it is far from foolproof. Countless companies have been ruined because they decided to franchise before they were ready, or because the contracts their franchise attorneys drew up were unprofitable or illegal.
At the end of the day, a franchise is only as good as its franchisees. McDonald’s is successful because they have a flawless business model and they keep a close eye on all of their stores. They never, ever let new store owners do their owner thing. In fact, all new owners must prove that they can follow the rules before they are given the opportunity to open more stores. This carrot and stick approach works for both sides. The company increases profits and improves its reputation at home and abroad, and the owner of multiple stores rakes in the big bucks. Most of them are millionaires many times over.
The single most important step that any business must take is drawing up an ironclad contract that covers all contingencies. The document should be extremely specific and should leave absolutely no room for negotiation. This exactitude will invariably serve the company well in the future. A contract that is drawn up by qualified franchise attorneys will lower the risk of any misunderstandings between franchisors and franchisees, which means fewer lawsuits.
