“The most readable, practical and complete book that I have seen on the subject of purchasing a franchise. I strongly recommend it as must reading for anyone interested in buying a franchise for the first time.” —Stephen R. Buchenroth, former Chairman of the Franchise Committee of the Small Business Section of the American Bar Association
“...a first-rate guide to evaluating and selecting a franchise.... A great read for any would- be franchise investor.” —Matthew R. Shay, Vice President and Chief Counsel, International Franchise Association
Every day, more and more people want to take control of their destiny and become their own boss. However, most people have no idea how to take the first step. How to Buy a Franchise is that first step.
Finding information on selecting and buying a franchise has never been easier. This book explains everything you need to know about how to research a franchise company, analyze its financial and sales information and investigate the earnings claims of the franchisor. It tells you what to look for in disclosure documents and details the contents of Offering Circulars and Franchise Agreements.
Your initial decisions become the contract that guides your relationship with a franchisor for years to come. The crucial factors that are explored in these agreements include: v training programs v registration v equipment purchasing v earnings claims v termination v renewal
The opportunities available for someone to start a proven business are countless. How to Buy a Franchise will help anyone turn these opportunities into realities.
Excerpts
From the book...
As obvious as this may seem, it is important to clearly understand what a franchise is if you are thinking of buying one. Unfortunately, the term franchise does not lend itself to an easy or precise definition. Simply put, it is a method of distributing goods or services—a unique selling concept that fits hand-in-glove with our highly mobile, service-intensive society. The franchise system benefits both individual franchisees and the franchise as a whole. These benefits usually include:
• proven business format;
• standardized method of operation;
• national advertising;
• franchise name recognition;
• franchisee training;
• franchisee network;
• standardized fixtures and equipment;
• professional site location assistance;
• centralized buying power; and,
• rules and quality control standards.
Franchisors create this system to expand their business without investing more capital or adding personnel and increasing their payroll. In fact, franchisors raise capital by charging franchise fees to their franchisees. In other words, by franchising their products and/or services, franchisors can build both their profits and their business, without spending significant amounts of money. Understanding the development of franchises can also help define a franchise.
A BRIEF HISTORY
The booming post-war economy of the 1950’s propelled franchising into the modern economic era. The newly-formed interstate highway system provided the infrastructure for new restaurants, hotels, and service stations, all designed to meet the changing, growing needs of a new breed of mobile and adventurous Americans. Added to the mix was the power of television that provided the first truly national advertising medium. These dynamic forces, combined with newfound wealth, fueled the franchise fire.
Yet franchising can trace its roots back over one-hundred years, from when Isaac Singer first utilized the concept. He reportedly accepted a royalty or license fee from independent salesmen for territorial rights to sell his sewing machine. Then, the invention of the automobile thrust franchising into a higher gear, as it did with many other aspects of American life in the early 1900’s. General Motors established dealerships to meet the rising demand for automobiles and oil companies offered service station franchises to the mechanics of the day to create an automobile service industry that thrives to this day.
The names Howard Johnson’s and Kentucky Fried Chicken could not have been etched into our collective memories without the upsurge of the franchising method of doing business. McDonald’s would not have taken on the proportions of an American icon. Much is owed to the early franchise pioneers who provided a novel business methodology that allowed rapid expansion, the pooling of capital, and a harnessing of the American entrepreneurial spirit.
As franchising evolved in the early 1960’s, the need for a precise definition increased. However, it was not until 1971 that California adopted the first law regulating the sale of a franchise. It was not until the end of that decade that the Federal Trade Commission (FTC) adopted a regulation on the federal level under the Federal Trade Commission Act. Unfortunately, the definitions adopted by the FTC and California were not identical and the enforcement structures were very different. These twin starts established a regulatory morass that continues today.
Table of Contents
Introduction
Chapter 1: Why Buy a Franchise? Defined and Proven Business Format Specialization Uniform System Advertising Network Name Identification Training Franchise Network Power Buying and Computerization
Chapter 2: What is a Franchise? A Brief History Defining a Franchise Business Opportunity Plans
Chapter 3: Finding the Right Franchise for You Shop Around Let the Buyer Beware Starting Your Search Patience
Chapter 4: Disclosure Laws Disclosure Documents Initial Consideration Cooling-Off Period Relationship Laws State Agencies
Chapter 5: The Disclosure Statement Receiving Disclosure Documents Criticism of Registration Analyzing the Disclosure Documents Format Contents
Chapter 6: Financial Feasibility Cash Flow Projections Territorial Limitations and Demographic Research Visit the Franchisor
Chapter 7: Professional Assistance Finding the Help You Need
Chapter 8: Franchise Salespeople and Brokers
Chapter 9: The Background of the Franchisor Founding Fathers Warning Signs Personal Meetings Financial Background Government Agencies Company-Operated Units
Chapter 10: Investigating Existing Franchisees List of Franchisees Financial Earnings Additional Resources
Chapter 12: Understanding and Negotiating the Franchise Agreement Read the Contract Franchisee’s Duties Franchisor’s Duties Clarification to Start Negotiation Hard-to-Change Provisions Use Your Attorney Compare the Franchise Agreement to the Offering Circular Purchase Price Negotiations Initial Term and Renewal Clauses Franchise Termination Transferring or Selling the Franchise Product and Equipment Purchase Requirements Operation Manuals—the Hidden Agreement Franchise Territory Dispute Resolution, Choice of Law, and Forum Selection Negotiating
Chapter 13: Your Relationship with the Franchisor Training Performance Unsatisfactory Performance Enhancing Performance
James A. Meaney practices law in the United States Virgin Islands and Ohio and is a member of the American Bar Association’s Forum Committee on Franchising. He served as the first Chairperson of the Columbus (Ohio) Bar Association’s Franchise and Distribution Law Committee from 1992 to 1994.
Mr. Meaney is a cum laude graduate of the University of Dayton School of Law. He was Section Chief of the Ohio Consumer Frauds and Crimes Division, Ohio Attorney General’s Office from 1982 through 1984, where he first became involved in franchise regulation and litigation.
His practice includes representation of franchisees and franchisors, franchise litigation, preparation of franchise disclosure documents, general business law and litigation, and personal injury litigation.
Mr. Meaney is the author of Evaluating and Buying a Franchise (Pilot Books, 1987). In addition to frequent lectures on franchising-related topics, Mr. Meaney has been a contributing editor of Advising Small Businesses (Franchising Chapters), Clark, Boardman, Callghan (1992 to 1997).
His other writings on franchising include Getting Your Message Across: Learning to Speak So That Your Franchisor (or Franchisees) Will Listen (American Bar Association Forum on Franchising, 1996 Mid-Year Meeting), Choice of Law: A New Paradigm For Franchise Relationships (15 Franchise Law Journal, 75 (Winter 1996)), and Representing Franchisees, American Bar Association Forum on Franchising (1997 Annual Forum (coauthor October 1996)).
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