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One popular way to get started in your own business is through a franchise. A franchise is a business organization in which a well-known firm with a successful product or service--the franchisor--enters into a contractual relationship with another business--the franchisee--that operates under the franchisor's name in exchange for a fee. Fast food restaurants are commonly operated as franchises. Before you enter into a franchise agreement, consider the following questions, and go over your responses with your attorney.
COST OF THE FRANCHISE How much is the initial franchise fee? $_____________ Refundable ___ Nonrefundable _____ What does the initial fee purchase? __________________________________________ _____________________________________________________________ ________________________________________________________________ Is a lump-sum payment required? Yes ___ No ___ Are installment payments allowed? Yes ___ No ___ How many? ___________ Payment due dates __________________________________________________ Is franchisor financing available? Yes ___ No ___ Interest rate _____________ Are periodic royalty payments required? Yes ___ No ___ How often? ________________________________________________________ How are they calculated? __________________________________________________ _____________________________________________________________ ________________________________________________________________ Does the franchisor provide accounting services? Yes ___ No ___ For an additional fee? Yes ___ No ___ How much? $_________ How are advertising costs divided between the franchisor and franchisee? ____________ _____________________________________________________________ ________________________________________________________________ Is advertising national, regional, or local? _______________________________ What other services does the franchisor provide? _______________________________ _____________________________________________________________ ________________________________________________________________ How is the franchise premises obtained? Purchase ___ Lease ___ Is financing available from the franchisor for the purchase of the premises? Yes ___ No ___ Interest rate _________ How much of a down payment is required? $_____________ How much are the rent payments? $_____________ Due on _______________ FRANCHISE LOCATION What geographic area is encompassed by the franchise? __________________________ How far away is the nearest existing franchisee of the same franchisor? _____________ Are other franchises planned for the same geographic area in the future? Yes ___ No ___ If so, provide details ______________________________________________________ ________________________________________________________________________ Who selects the site for the franchise? Franchisor ___ Franchisee ___ Can the franchisee use his or her own property for the franchise? Yes ___ No ___ If the franchise premises require new construction, who determines the plans and specifications for the building? Franchisor ___ Franchisee ___ Who supervises construction and works with the contractor and subcontractors? Franchisor ___ Franchisee ___ What are the specifications for and restrictions on the appearance and configuration of the premises? _____________________________________________________________________ _____________________________________________________________ ________________________________________________________________ _____________________________________________________________ ________________________________________________________________ Who provides property insurance on the premises? Franchisor ___ Franchisee ___ What are the franchisee's responsibilities relating to remodeling? __________________ _____________________________________________________________ ________________________________________________________________ _____________________________________________________________ ________________________________________________________________ What restrictions does the franchisor place on remodeling? ________________________ _____________________________________________________________ ________________________________________________________________ OPERATING TERMS
Must all equipment and supplies be purchased from the franchisor? Yes ___ No ___ If not, must purchases be approved by the franchisor? Yes ___ No ___ How much control does the franchisor maintain over day-to-day operations? _________ _____________________________________________________________ ________________________________________________________________ _____________________________________________________________ ________________________________________________________________ What aspects of the business are left to the discretion of the franchisee? _____________ _____________________________________________________________ ________________________________________________________________ _____________________________________________________________ ________________________________________________________________ Are hours and days of operation dictated by the franchisor? Yes ___ No ___ Are products and services strictly controlled by the franchisor? Yes ___ No ___ Must the franchisee remain personally involved in running the franchise, or can the management duties be delegated? ____________________________________________ ADDITIONAL CONSIDERATIONS Does the franchisor provide initial training? Yes ___ No ___ Does the franchisor provide on-going training? Yes ___ No ___ Under what conditions may the franchisor terminate the franchise? _________________ _____________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ What are the franchisor's duties and obligations to the franchisee in the event of such termination? ________________________________________________________________________ _____________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ Under what conditions must the franchise be renewed? ___________________________ _____________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ What happens to the franchisee's interest if he or she dies? ________________________ _____________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ Is the franchise assignable? Yes ___ No ___ How long has the franchisor been in business? ___ years How many total franchises are there? ________ Are these franchises financially successful? Yes ___ No ___ How long did it take them to become profitable? _______________ Has the franchisor complied with all applicable state and federal laws and regulations? Yes ___ No ___ Other questions to ask my attorney: __________________________________________ _____________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ |
Speak with a Business and Commercial Law Attorney
If you are considering going the franchise route, be sure you have all the information necessary to make the best possible decisions. Numerous business throughout the U.S. use franchises as their way into the marketplace such as the automotive or fast food industry. If you have questions about the law, a good first step is consulting a business and commercial law attorney familiar with the laws of your jurisdiction.
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