As discussed in Part 1 of this blog, if you are considering purchasing a franchise it is crucial that you understand the upside as well as the downside of a franchise purchase. The good thing about purchasing a franchise is that you have your own business but are not in business alone.
When considering the purchase of a franchise, the Franchisee should make sure to do their due diligence in researching the particular franchise. There are important disadvantages to take into account. A franchise is not fully independent in the operation of the business. There can be a loss of autonomy regarding actions taken regarding the company. The franchise agreement will contain required procedures and restrictions under which the Franchisee must operate the business. Restrictions and constraints may include the payment of the initial franchise fee, high start-up out-of-pocket costs, ongoing royalties, advertising fees and other fees related to products and services. It is important to remember that the payment of these fees and costs can significantly impact the profitability of the business and can be a challenge to starting a new business.
There may be limitations in the franchise agreement regarding which products or services can be offered or promoted in a particular geographic area and at what price. The Franchisor may have mandatory company-wide requirements regarding how the physical business space is set up (i.e., business colors, signage, business location, set up of the physical site and tenant improvements). The franchise may not have a good reputation in general or in your area. Additionally, the Franchise or may not provide an adequate level of support so that the business can be successful despite all of the restrictions and requirements. When doing your due diligence about a franchise, it is important to find out about how all of these potential disadvantages could impact your business.
Attorney Assistance is Essential in Evaluating a Franchise Purchase
We can help you ask the right questions to find out what you need to know about whether the franchise is a good business opportunity. We have experience in advising about business purchases and sales. For quality assistance, contact us at (925) 463-9000 or send an email.
Lisa Wills of the Law Offices of Lisa D. Wills is a skilled business law attorney in Pleasanton, California helping business owners to evaluate business purchases and practices. For quality legal support about your business, contact Lisa Wills, Law Offices of Lisa D. Wills at (925) 463-9000 or send an email.