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Franchise laws cover the information franchisors are required to reveal to the franchisee. You will get a document called a UFOC, which is designed to protect you from inflated earning statements, pie-in-the-sky promises, and fast-talking franchise sales people.
Franchise laws require that you get this document at the first face-to-face meeting or ten business days before the franchise agreement is signed or money is paid. Don't make the mistake of ignoring this document. Read it thoroughly and make sure you understand it. Starting your own franchise is a lot of work. Some of the key information in this document will help you when you develop your business plan and possibly apply for small business loans.
Learn how to start a franchise by reading up on it as much as possible (there are countless books and articles available on the subject). However, you will also need to be sure that the business that you choose is a good fit for you.
Some important things to look into are:
• Making sure you genuinely like the product or service and feel you can sell it
• Finding out the kinds of assistance and support you can receive
• Picking an industry that you enjoy (even if you don't have any direct experience in it)
• Visiting existing franchises (see how the stores or offices are set up and talk to the owner, employees and customers)
It's hard to be a successful business person if you don't believe in your own business. Be sure that the one you choose is right for you.
When you have your first face-to-face meeting with the franchisor, or 10 days before you sign the franchise agreement or pay money, the franchise laws state that you will get a copy of a document called a UFOC. Item 11 in this document spells out the details of your franchise agreement. It will also include details about training and required equipment purchases.
In general, the franchise agreement outlines your obligations and the standards of operation you are required to uphold. Remember, a franchise's success is partially dependent on expectations customers have based on other franchises they have visited. The franchise agreement also specifies what will happen if something goes wrong (for example, it will outline the timeframes of any notice the company has to give you if you're failing to meet your obligations).
Starting your own franchise offers a nice way to lessen the risks involved in starting your own business. You get the benefit of an existing product, guidance on your plans and operations, and ongoing support and training. If the franchise product or service is known in your area and has a good reputation, you get the benefit of brand awareness in your potential customers. For a storefront, you might also get assistance in scouting out a good location, working with a contractor to build out the shop, getting any necessary equipment, and finding and hiring employees.
If you already have a successful independent business, you might want to consider starting your own franchise as a means of expansion. Know, however, that there are both pros and cons to expanding via franchises. Be sure to research the franchise laws. In terms of legal liabilities, you take on some additional risks while getting rid of others. Individual franchise owners assume the risk of employee issues, leases, and other risks (which will be spelled out in your franchise agreement).
Franchising your business will allow you to grow without having to make the capital investments yourself. Franchise owners are often more motivated than managers you might hire for new locations (since they're investing their own time and money in the venture).
If you're starting your own franchise, you can look to the franchisor for a loan. You should also check with the Small Business Administration, as they can help you get small business loans as well as valuable advice. Other sources for small business loans include home equity, friends and relatives, veteran's loans, banks, and credit unions. If you can get the SBA to guarantee your loan, banks are more willing to work with you.
* Be wary of using your home equity as a source of funding, as you could lose your home if you're unable to make the payments.
|Jennifer Mathes, Ph.D.|