Buying a Franchise – Evaluating Franchise Investments and Franchise Disclosure Document – Expert Advice Franchise and Franchise Tax

Millions of people dream of owning their own business. After the independence that being your own boss brings, the security that nobody can fire you, enjoying a good income – and for the most successful – the accumulation of wealth and prosperity. Unfortunately, the cards are stacked against a new small business making it big – or do so at all. An endless stream of problems makes competition from large chains, sophisticated too intense. Many start-ups end as failures.

Buying a franchise represents a different approach to starting a business. By an upfront franchise fee plus ongoing royalty payments, the parent teaches their business model and methods to the franchise-operator who shoulders all operational and financial responsibilities of the outlet. Some statistics are impressive: it is said more than 40% of total U.S. sales through retail outlets are franchised. While franchise giants like McDonald's, KFC, H & R Block and Radio Shack are familiar, household names, franchises are available in a wide range of industries. The list of companies selling franchises more than 3,000 over more than 100 different categories.

Sleep American … or nightmare?
But as franchising represents a chance to get rich, is also an opportunity to get stung. Alarming number of franchise operators earn less than minimum wage, working seven days, sixty to eighty hours a week, pursuing an expensive and difficult to reach American Dream that turns into a nightmare. Because royalty payments current franchise comes right at the top, as a percentage of gross sales or a fixed minimum amount the company receives a franchise security income stream, even if their units are operating at a loss for franchisees and sold over and again to new buyers, confident. The Internet is full of reviews of the many people who lost $ 250,000 and more on concepts like eBay Deliver stores (iSold) 30 Minute Fitness concepts (Curves), The UPS Store, etc. However, many of these companies continue to sell and resell franchises over and over again. How? Because there are enough people who think they can "believe" their way to success, even with a concept or a company that is not working in the market. As noted above, in many cases investment decisions are incredibly franchise based on emotion, not business logic or even common sense.

Property And be your own boss?
The pride of ownership and your own boss is highly touted recruiting ads phrases of the franchise. But these are more fantasy than reality. Although obtaining all the financial exposure, headaches and stress of business ownership, what really counts? The owner a franchise is only a trademark license (or service mark) of a company that dictates every aspect of business operations. So the real boss is not you, but the company that sells franchise rights. . . and sea of franchise obligations.

Build Equity?
But at least they're building equity, the value of the property business as a going beyond their investment money to compensate those years of hard work and long hours – right? Wrong – at least in the world of franchising. Franchising reserves the right to purchase the company all its business wholesale prices, if your contract is not followed precisely. The purchase right set default ratings based on assets such as book value or liquidation. These valuation methods provide a minimum compensation (the value used by some file cabinets, office furniture, equipment, etc.) and generally not used to determine the selling price of any business.

Absolutely no compensation is paid goodwill established, the value of a business that is generating $ X in profit or cash flow every month after years of effort, investment and spending – which eliminates most valuable asset ownership. Of course, you may be able to sell his franchise to a third party for a sale price that includes a valuation based on earnings. But that is only possible if:
(A) you can find a buyer who is willing to live within the complexities of a franchise relationship, and
(B) you own a franchise that is showing healthy profits.

What follows is a checklist of baseline franchise and tips collected by the franchise lawyer and franchise expert, Mr. Franchise, based on a review of over 500 Franchise Offering Circular and twenty more than eight years of experience in the franchise industry – including ownership of a franchise great success. These factors to consider in making a franchise investment will help eliminate 95% of the companies you are considering. Then you can focus their efforts in the 5% "," cream of the crop "Companies that may deserve consideration. This franchise list assumes you're suitable for and willing to live within the limits of a franchise relationship. It also assumes the company of franchise

(1) has successfully operated the franchise concept to be at least five years at various locations
(2) is not plagued by disputes and litigation of franchise franchise disgruntled franchise owners;
(3) not unusually high dropout rates franchise (owners who have "logged out"), and
(4) has a contract balanced, fair franchise.

Sold it – An American Dream became a nightmare
An example of a franchise in issues that do not meet standards iSold basic threshold is a delivery eBay Store franchise. The company started its one and only company-owned store in November 2003. A few weeks later, 10 December 2003 filed an application to sell franchises. The California Department of Corporations did not say "What are you thinking?" You only been in the business a couple of weeks, how can you even consider selling franchises? "Nor is required in this stand as a risk factor on the cover of The Franchise Offering Circular, as it should have. The disclosure responsibilities ultimately rest with the company (and their lawyers), and this turned one of the many issues in franchising disputes in the future.

Instead, the Department limited its $ 675 filing fee and issued an order declaring franchise registration effective the next day – 11 December 2003. Then the magic of marketing took over the franchise. In 2006 the company had about 200 franchise stores in operation fall and was touted by Entrepreneur Magazine as # 1 in its list of "Top New Franchises for 2007" and # 17 in the "Hotter Than Hot list of franchise." Entrepreneur Magazine, which requires franchise companies to submit their FOC of (Franchise Offering Circular) for review means that every year before they are mentioned, it took into account the high attrition rate (franchise owners leaving the system) or the fact that states its audited financial FOC showed the company had not operated profitably since 2004 and negative iSold serious and gave the # A list for Top New Franchises 2007. How did all this? It's another bizarre reality in the world of franchising.

The company's franchise states audited financial statements for the year ended 12-31-05 showed an operating loss of $ 1.1 million. Nine months later, in September 2006, the net deficit proliferated holding more than $ 4 million.

In its November 3, 2006 Franchise Offering Circular, the table in Article 20 revealed a total of 10 owners franchise leaving the system, however, a manual count of the exhibition "The franchisees ex D-3" showed a significantly different – 44. A similar "discrepancy" exists about franchise transfers. Article 20 says 12 transfers, while Figure D-3 show 27.

In a long overdue letter distributed to franchise owners April 5, 2007, CEO Ken Sully painted a grave picture of an American dream that had become a nightmare. Mr. Sully's letter admitted the company has not been profitable since 2004 (according to audited financial data, the company showed its sole operating profit of $ 356,286 in 2004 before the precipitous downward spiral of 2005 and 2006). More than 60 franchised stores have closed and many more are struggling to survive. Mr. Sully observed "Tragically, many people who believed passionately in the potential for the category have lost major investments, including houses and savings for retirement. "

They lost their homes and retirement savings? How could it happen a farce? I advised a number of people perceived iSold a franchise and warned all of them against the investment. Fortunately, he followed my advice. The concept was never proven in the marketplace before franchise efforts began, violating the most basic precepts of relief 101. I also felt the management team lacked strong franchise credentials and training program five days was woefully inadequate. Finally, the franchise company operating increasingly in the red and had a high attrition rate (owners leaving the system). It did not take much brain power to see this was an accident waiting to happen. I predicted the bubble would burst and, sadly, did.

Common sense could and should have prevented many people from losing so much. Unfortunately franchise sales attract people emotions (passions and potential, to use terms Mr. Sully) and strive to keep common sense and business logic out of the equation of purchase. If a franchise company is able to obtain a rating in a media list, the sale is even easier. Reprint high rankings on lists such as Entrepreneur Magazine, included in the package would franchise buyers, who are lulled into a false sense of security and begin to run into each other in a rush to sign before someone else takes their territory desired (another favorite closing technique selling franchises).

iSold It! amended its FOC at the end of May 2007 to add little, Language risk factor behind the cover of its Franchise Offering Circular. Mmmm … maybe they read my previous comments and did a little research. The new pavilion convenience cover page language risk factor says their "franchise system is still new and unproven." That's very interesting. How can they say a franchise system, which is approaching its fourth anniversary, is "still new?" Maybe they're seeing things from a "what old is the universe? The word "unproven" is another play on words. The system is certainly proven that many people, says Mr Sully, "Have lost significant investments, including homes and retirement savings." Why not use this quote directly in their Franchise Offering Circular? Answer: You can not sell any franchise in this way.

In an August 31, 2007 Business Week article, CEO Sully said it was not necessary to disclose these factors risk in the flag of convenience. His reasoning: "We told everyone that this is like nature, Wild West," he says. "It is a new concept and no one knew for sure where it was going. "Disclosure was added to the UFOC recently, says," because of the number of stores that were not understanding of the complexity of the business. "Hello?" Do not tell investors its franchise after the fact what was required to disclose in the FOC, rather than bought so they could make an informed investment decision. That is the purpose of disclosure laws of the franchise. And claiming written disclosure risk factors in the PDC is not necessary if you hear a potential buyer of a seller verbal wild, wild Western history ignores franchise disclosure responsibilities and it is really a confession of the enterprise failed in this regard. With amendment, FOC, the company continues to march forward with very marketing efforts of the franchise.

Now, let's consider the franchise checklist and factors to consider before jumping to the franchise.

INDUSTRY TREND
Is the franchise in a cutting edge industry is doing well now and is expected to do well in the future despite of an economic downturn? Education and home improvement services are stable categories. The food is overly saturated generally and, except in exceptional circumstances not worth the high investment, long hours, headaches and marginal revenue.

TOTAL INITIAL FRANCHISE INVESTMENT
In general, do not expect a franchise that requires an initial investment of five digits of the franchise to produce a six figure income. As with most things in life, you get what you pay. On the other hand, does not entail an investment of six figures lead to an income of six figures. Be realistic and conservative. Is the total initial franchise range investment (including working capital) $ 125.00 or less and the maximum investment of less than $ 200,000? You can find solid companies in this level of investment if you're willing to look around.

Do not forget to consider long-term financial commitments, including lease of real property (See discussion below under "LEASING AND LOCATION). In addition, working capital estimate (called "additional funds" in paragraph 7 of Circular franchising company) does not cover operations until the point of balance. It only covers a short initial phase (usually only three months) operating costs as the balance point (where revenues cover all operating costs) can not occur for one, two or more years, knowing that only what will take to get you through the first 90 days is not helpful – in fact can be configured to financial suicide. In many cases, to the point of equilibrium may require more reserve funds of the total initial capital investment. Never forget the name of Article 7 of the Franchise Offering Circular: "The initial investment." If you do not have a sufficient reserve capital to reach the critical point of balance, all of your investment go down the drain and franchise failure occurs.

A franchise owner in a franchise relatively low investment and low cost window cleaning operation, said his biggest surprise was the time they actually had its franchise to be profitable. Upon entering, he thought it would take 12-15 months. He ended up taking twice as long. Fortunately, I had the capital reserve sufficient to do it there but refused to say what their actual benefits of franchise or income level was reached after "excess profits." If you is operating just above breakeven and making less than minimum wage, is that the definition of any successful person?

REAL BUSINESS
Is this business a legitimate retail, as opposed to a work "home" operation? The vast majority of work outside the home concepts produce marginal income best.

FRANCHISE MANAGEMENT EXPERIENCE
Does the management team franchise (the company selling the franchise), executives have the proven performance and experience in operating a franchise business (not just people who have sold franchises)? If not, this is a big red flag. Many companies enter into the franchise and not realize they are in a new business – that completely requires management skills and capabilities to navigate the franchise relationship. A seasoned management infrastructure and franchise must be in place. If the franchise management team lacks strong franchise credentials, or receive ongoing advice from qualified persons that could also make a trip to Las Vegas with the money that is the intention of investing. Your chances of losing money to address are approximately equal.

Normal working hours and days FRANCHISE INCOME LEVEL SUFFICIENT
Does the nature of the business let you work a normal five-day workweek of forty hours? Life is too short for the seven-day lifestyle of sixty to eighty hours a week, workaholic that destroys health, family and budget. Financially, We calculated the true hourly rate for franchise owners who work these workaholic hours and discovered many are making far less than the minimum wage. A couple who operated a pizza franchise $ 200,000 in an exclusive luxury mall were surprised to discover they were doing fifty cents an hour each. Just one level revenue to recover or justify the investment of the franchise. Many more operators in fast-food franchises that even less, or operate at a loss to their funds, retirement savings, homes, etc. have been exhausted. Buying a franchise in a non-food industry does not necessarily improve the image of the benefit of the franchise. In a 2006 article "Mail Boxes Etc. Owners struggle conversion UPS, a Mail Boxes, Etc. franchise owner who operated his franchise since 1993 reported earnings of a typical MBE store like his $ 16,000 per year after payment of royalties and publishing rights to the franchise company. That calculates to about $ 8.33 per hour during a forty-hour work week, about a worker's wage fast food intake.

Another major shortcoming of the disclosures in the Franchise Offering Circular is not telling how much money the franchises in the network are doing. Instead of answering the question what is more important to a franchise investment decision, the franchise disclosure laws make this "optional" for the company franchises respond or not. If they do respond to this critical issue, it is in the starting 19. But do not hold your breath – more than 90% of franchise companies "decide" not answer this question. It's another bizarre reality in the world of franchising. Although the full monthly gathering (and in many cases, weekly) the profit and loss statements Financial terms of its franchise owners, and know exactly what their franchises are making (or losing), more than 90% decide not to share this information before buy one of their franchises. A number of sellers of franchises have said to people asking this question: "The franchise laws do not allow us to answer that question." Nothing could be further from the truth.

And just because you are a business executive making a six-figure income now, do not assume that this level of income double in a franchise investment just because the company "approves" your application. One such executive, despite a plethora of feedback negative current and former owners of the franchise that had lost everything, marched forward with its investment in a fitness franchise concept in 30 minutes. A Despite six-figure income, not a penny invested in career counseling franchise assessment and stated that it was taking a leap of faith, the hope of building wings on the way down. Build your wings on the way down? (And the sound is) crazy, but it happens all the time. Because the maneuvers of the franchise seller, well many of the franchise investment decisions based on emotion. Prior business skills, business sense (and even common sense) are shorted. Needless to say, if the business executive made a similar investment decision your employer enterprises to pay 6-figure salary, she promptly fired.

MINIMUM NUMBER OF EMPLOYEES
Can you operate the franchise business with six or fewer employees? Managing dozens (or For some fast-food operations – hundreds) of minimum wage teenagers who are constantly quitting or simply not going to work is a real pain in the ….. Well, you know what we mean.

LEASING AND LOCATION
For most retail franchises, the lease triple net location is the biggest financial commitment, greater than the total investment for the franchise. However, the typical real estate lease and its ramifications disclosure is not required in any Franchise Offering Circular (FOC). For example, an estimate will need 2,000 square feet of space with a forecast rental of $ 5 to $ 10 a foot per month is normally disclosed in the table's initial investment Franchise Offering Circular as a Real Estate Leasing $ 10,000 to $ 20,000. A footnote to the investment table may say "takes 2,000 square meters at $ 5 to $ 10 a foot."

But that's just the beginning of a long history longer. The lease is normally one year from 5-10 triple-net lease. Therefore, the financial commitment when the contract is firm at least $ 600,000 (U.S. $ 5/foot for 5 years) $ 2,400,000 (a $ 10/foot for 10 years). And these are not substantial, additional obligations to pay all taxes on the annual property owners, insurance, common operating area, etc. With hundreds of thousands (or millions) of dollars in obligations financial stake, personal guarantees and other risks, rather than a warm, fuzzy feeling that everything will work is necessary.

Key questions for ask here:

(A) is the franchise that you are thinking that can be operated in a business area under commercial lease? Avoid requiring franchises expensive costs and triple net lease of a local sale and rental extravagant visible associated with areas of high foot traffic such as shopping centers. You'll sleep better at night.

(B) What is your total financial commitment under the lease?

(C) Do you have sufficient liquid assets (or a willing, sufficiently liquid third-party guarantee) to comply with lease owners qualification standards?

If not, you might as well forget about investing in the franchise. Or worse, to participate in a questionable franchise and business model, then realize you've made a big mistake – and discovering that is on the hook personally for a lease obligation of $ 500,000 +.

A related variant real estate is to secure a lease in good time (with renewal options) to recoup their investment and profit. In July 2005, attorney forties bought an existing ice cream shop grant of $ 375,000, thinking it was a "unique opportunity in-one life." With the trade of his briefcase a scoop of ice cream, the company attended 11-day ice cream of the University and assumed operations that store. It turned out that was an opportunity – but only to inherit a store with numerous problems. These problems include (but are not limited to) a lease expiring next summer and an owner who had previously announced the contract would not be renewed. Instead of paying the $ 100,000 plus relocation expenses, the lawyer returned to the practice of law, but is still paying off the remaining $ 350,000 loan taken out to buy the franchise opportunity in life. Although there is no franchise lawsuit pending, is another case of foot "franchise" – this time attacking a professional no less. Who would commit to paying $ 375,000 a concession to existing distribution without checking out the lease? Sounds like another bad lawyer joke, but I can guarantee you not to laugh. fundamentals company were ignored or forgotten in the race to acquire the opportunity of a lifetime. And I'm willing to bet a dollar spent on qualified counseling, pre-investment franchise.

IMAGE & LIFESTYLE
How does flipping burgers, frozen in portions and cleaning bathrooms in the image of what you want for a living? Investing in a franchise is the most important decision you make financial and psychological forever. Many future franchise owners are not present account will be using almost every hat at some point, the seller's bad-debt collector, from firing employees to the bathroom janitor. The owner of the franchise is usually the first to arrive in the morning – and the last to turn off the lights at night. And you'll have to forget about corporate benefits such as paid vacations, paid vacation and sick pay. Instead, the substitute financial pressures, unexpected events and money draining out of their savings and retirement accounts. Does the typical working day and responsibilities of the franchise you are considering fit your personal image and desired lifestyle? You may experience some Before investing these working for a couple of weeks in a taking of property from one of the existing franchise owners.

TRUE VALUE OF FRANCHISING
Buying a franchise on a chip "blue" franchise company that has spent decades and hundreds of millions on advertising to build your brand can do a lot of sense. These companies have "real franchise value" that compensates for long-term disadvantages of ongoing royalty and advertising fund payments. A often these additional payments literally mean the difference between making a profit and operating at a loss. In unknown franchise chains with little brand recognition or nothing, that the franchise buyer is building its brand from scratch, and carry serious disadvantages, long-term competitive.

In these unknown franchise chains, you have to ask a simple question, common sense. What is the value the company giving you could not learn on their own to work in one of their locations as an employee for a couple of months? Franchise truth be told, what many companies are selling franchises unknown is only a business opportunity – teaching you how to enter in a new business. But unlike a seller of the business opportunity which charges a flat fee to help in the business, they call a "franchise" and collect royalties and current advertising rates are a McDonalds or other big company franchise chip.

The reality is that not a McDonalds type franchise – not even close to one. In most of these lesser-known franchise chains, you'd be much better to start an independent business on your own. You can learn most or all their so-called "secrets" of the series of interviews and talking process with (and possibly a short time working for) the current owners of the franchise.

FRANCHISE PROFITABILITY and "success"
Dr. Timothy Bates study released in 1993 by business growth and investment Institute Washington, DC (and another study published in 1996) was the first to compare the initial costs, franchise profitability and failure rates for business franchise franchise vs nonfranchised. In his analysis of some 7,270 companies in the probationary period, Dr. Bates found that the initial capital for a franchise average $ 85,293 business compared with the average starting capital for companies nonfranchised of $ 30,156. In 1987 the company reported net income nonfranchised average before taxes $ 19,744, compared with a loss of (- $ 1,548) for business franchise. Dr. Bates concluded "Despite largest of its income, better capitalization, and its supposed advantages of affiliation with a franchisor parent company, the franchisees lag behind cohort of firms young people in the profitability and survival rates. "

Franchise companies ignore both studies by Dr. Bates, pretending it never happened. In contrast, other techniques are employed. For example, some companies use misleading figures for a successful franchise to sell their franchises. Its promotional materials say franchises generally enjoy a success rate of 90%, compared with less than 20% for independent firms. These figures are based on information not verified provided thirty years ago by a select, unrepresentative group of franchise companies. One third of the companies receiving "questionnaires," chose not to participate. There was no verification of any information provided by the franchise companies, even random spot checks. Nor was any effort to identify franchise companies who, along with the franchise owners of its chain, had gone out of business.

Even more recent "Studies" saying nine out of ten franchise owners (90%) feel that their franchise is somewhat or very successful also suffer from serious methodological flaws. These were simply telephone surveys of franchise owners who were still in business and asked to say (and without any definition of the term "Successful") whether they felt their business was "very satisfactory," something without success, "some success" or "very successful." Franchise owners who had gone out of business or bankrupt were not included in the survey.

Even if the terms are defined and obtained a sample representative, franchise owners can be a peculiar group. Hence the need, as in studies by Dr. Bates, to review financial data. Memory that the evaluation of an existing franchise for a client. I asked the current owner of the franchise to make your business a success. He said it was a great success. But their financial statements reveals a different picture. I never had a dollar out of business by himself, never made a profit in two years of operation, and was in verge of bankruptcy. Another owner of a bakery franchise, interviewed by Business Week, says success in franchising means "adjusting your definition of success. "He says he makes a profit, but declined to say what is, or if he ever recovered its investment of $ 250,000 plus the initial franchise. Incredibly, he insists that in business "for lifestyle reasons, not for profit." Huh? It is likely that a quote from the company's materials procurement of the franchise. In the world of franchising "success" and "profitability" are very subjective terms.

FRANCHISE runners find your perfect match?
Does the franchise you're considering having your own home in the marketing department, or used outside the corridors of the franchise? The use of franchise brokers is a definite red flag. First, it indicates the franchise company is very serious not let him join the franchise network, or worse, are desperate to sell franchises. Second, agents receive a commission of substantial relief to 50% or more of the franchise fee you're paying the franchise company. Franchise Broker Facts: (1) Their service is definitely not "free" despite these and other similar falsehoods. It is common sense – How can anyone offer a "free" service and survive in business? Unfortunately, common sense on the part of the brain tends to short circuit when the franchise brainwashing process begins. The simple truth is that if you buy one of the franchises that are advocating, your money goes to the franchise company, then in the pocket of the corridor. If anyone ever calculated the amount of time spent to collect the $ 15,000 or $ 20,000 commission, is probably much more than a neurosurgeon wins. (2) franchise agents definitely do NOT have your best interests in mind. They will do or say what they must to close a deal and earn a commission.

Many brokers claim that the franchise will help you find a franchise that is the perfect combination for you. At first it sounds good. There is some evidence of personality and review of their personal finances. At the end of the day, that only represent (and steer towards) a handful of small franchise companies you've never heard speak before. A detailed analysis often reveals these highly touted franchises produce mediocre results at or below minimum wage, including financial. However, brokers no mention of this franchise, and people still depend on its recommendations, believing the broker represents. Nothing could be further from the truth.

Also, many franchise brokers call themselves franchise consultants. A franchise consultant is usually an independent consultant offering advice to others (Usually franchise companies or companies that want to franchise your business) for a fee. This makes their advice more impartial in theory as long as are not compensated by third parties. Because they are not legally required to disclose actual or potential conflicts of interest, it is important to ask questions. For example, if you are a franchise consultant is recommending the best franchises, "" get paid anything by the companies on your list? This could be a commission, rebound or check prices. As mentioned, many franchise brokers call themselves "franchise consultants" to hide his true identity. Therefore, make sure that if you are dealing with a franchise consultant, he or she is not actually an undercover agent franchise.

FRANCHISE disclosure laws
The franchise disclosure laws, while requiring franchise companies to provide certain limited information, do not approach the protection of their interests. For example, as mentioned above, Article 7 of the Franchise Offering Circular only requires an estimate of additional funds for 90 days as part investment information. But economic reality is what you need to know the additional funds needed to reach the equilibrium point, which may take years or all of the "initial" investment will go down the drain. One would think that this type of information should be taken by the franchise disclosure laws, but it is not.

FRANCHISE registration laws
Never assume that because a company has registered its Franchise Offering Circular in your state, someone in the state has adopted or revised the document in its favor. Franchise registration is obtained by simply shipping documents and payment of a filing fee – period. In most cases, the Franchise Offering Circular are given a very limited review to ensure state-specific disclaimers are present.

Memory the filing of a registration for a new franchise company in a state with a reputation as one of the toughest "law franchise registration in the country. After the review period of three weeks provided in the statute had passed, and hearing nothing, I called the examiner assigned the application. After looking through their files, they finally found information memorandum and request for my client. He apologized for entirely misplacing the file and immediately pledged to review the application and call me back. Ten minutes later, he called to say he had finished and was making the record effective that day. Ten minutes of review and franchise company in the state gave the green light. This is not an isolated case – it happens all the time.

RULES MUST meet a franchise to sell franchises; Are there any requirements to franchise a business?
Incredibly, the answer is – no. There are no standards or minimum requirements to franchise a business, except the preparation of a Franchise Offering Circular. It's another bizarre reality in the world of franchising.

You and I could not have any business background, forming a new corporation or LLC, capitalized with only $ 1, to produce a Franchise Disclosure Document and present it at any stage of registration of the franchise. While the offer may be subject to seizure or escrow requirement because of the small-cap ($ 1), we would still get "registered" and be able to sell as a franchise until we want.

In these 14 franchise registration states, can not receive any money until each franchise actually opened, but simply bail could alleviate this difficulty in the franchise registration states. And the vast majority of states no franchise registration laws, it would be able to sell franchises and collect fees with impunity once we have compiled our Franchise Offering Circular. The federal FTC Franchise Rule does not protect against this risk either – it only requires disclosure (ie provide a Disclosure Document Franchise) and has no component registration or minimum standards for franchise companies.

basic protections of investors and the requirements are found in both federal securities laws and state for more than 50 years were never carried over to the investments of the franchise. While most leading companies franchise non-blue rate could not sell a single share in his company, which is entirely free to collect unlimited franchise fees, ongoing royalties, equipment and other purchases and make you to incur financial obligations totaling hundreds of thousands of dollars or even millions in some cases. This is not information likely to be found in the glowing articles about franchising and franchise companies prevalent in the media.

COMMENTS FINAL
Remember, you are the only guardian when it comes to your franchise investment. It's definitely an environment where the phrase " buyer beware "applies. So, before signing on the line and do what will undoubtedly be the most serious commitment of financial and emotional life, get all the facts and figures.

A couple advised me after the fact, has invested $ 2 million in a new franchise company. The contract they signed gave them no right suspend, no matter what the franchise company did or did not do. Of course, the contract gave the franchise company unlimited capacity of termination, a right was exercised. The team management franchise company had no one with experience in managing a franchise business. Incredibly, the couple had not spent a penny in legal or business advice before investing $ 2 million. The company once friendly franchise had become a formidable foe and was about to take over the franchise. Unfortunately, this happens too often in the franchise investment. Decisions are made in the diffuse feelings and emotions. In an effort to save a couple thousand dollars, franchise investors risk homes, retirement savings, everything they have. Then they scratch their head amazement later on after inevitable and terrible problems often arise, wondering how they could have been so short-sighted.

Another indispensable level research is whether you are getting true franchise value and whether you would be better to do business on their own. In the vast majority of franchises touted by unknown companies, franchise value is not there and doing the same thing independently makes more economic sense and actually decreases the risk of failure.

Finally, and this applies to franchise investments and invest in any business venture, develop a plan to succeed, but also planning a franchise exit strategy that minimizes the financial risk if things are not resolved. Both plans have to be thought through before the investment done. Do not wait until problems arise to start thinking about a franchise exit strategy – by then it is often too little and too late.

For more information, visit the Franchise Foundations website.

© 1990-2008, Kevin B. Murphy, BS, MBA, JD – All Rights Reserved

About the Author

Known in the industry as Mr. Franchise, Mr. Murphy is an internationally-known franchise attorney, franchise expert, author, and instructor. For the past twenty-eight years he has specialized exclusively in the franchise industry and owned a very successful franchise in the home improvement field. He has written over 30 publications, including four books on franchising and one book on trade secrets. Mr. Franchise has drafted, reviewed and negotiated more than 500 franchise offering circulars and instructs franchise company personnel in best franchise practices. He also teaches franchise, licensing and intellectual property courses to attorneys. Mr. Franchise is a franchise attorney and Director of Operations for Franchise Foundations a San Francisco-based professional law corporation.

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