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Franchising
Franchising incorporates the features of both a start up and an existing
operation. The franchise is the right to sell a product or service and in
most cases the risk has been considerably reduced, since a well established
franchise has a proven business record with established products or
services.
In a business format franchise, each
franchise business or outlet look and act the same. It should provide an
identical product or service with identical service.
A number of questions that need to be asked
when considering a franchise:
- How long is the franchise term and is it
exclusive
- How well established is the franchise.
- Is there adequate disclosure
documentation.
- Do you have to buy premises.
- Are you able to pick out what fees you
have to pay on an ongoing basis.
- Are the fees reasonable
- What are the operating manuals like.
- What is the extent of training
- Where do you obtain products and
services.
- What reports must you submit.
- What operating assistance do you receive
from the franchisor.
- If you terminate what restrictions are
there.
- How do you terminate the franchise.
- What dispute resolution procedures are
there.
- Can you make a profit.
The disadvantage is that at the onset, high
franchise fees may need to be paid to the franchisor and this may discourage
prospective business owners.
In addition to upfront fees, royalty fees
may be required on a monthly basis and these fees can be based on a certain
percentage of income or sales and in many instances you may need to have to
pay royalty fees even if the business is not profitable.
You can investigate the franchises that are
offered but you need to do some careful research before you make a decision
to purchase.
Buying a franchise is a complex process and
you must approach with caution. The more information you know the better
your decision is likely to be.
Compare other franchises in the same
field. Make sure you ask lots of questions and use any advisors that you
feel may be of help to you. You accountant can review any financial that
are available if you are an existing franchise and consult you lawyer as to
the Franchising Agreement.
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