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Due Care Should be Exercised Before Purchasing a Business Franchise

On behalf of Brian Chenoweth

Many Oregonians dream of opening their own business. Some will decide to start a business from scratch while others will buy a preexisting business. There will also be those who will investigate the possibility of purchasing a franchise business in the hope that it will prove less risky than an independent start-up business. Those interested in a franchise business will not be disappointed at the array of opportunities they have to choose from. As noted in an article published in Entrepreneur magazine, there is a “boggling variety” of franchises selling every imaginable product or service. Some franchisors are waiting to beguile prospects with “glossy brochures and slick presentations.”

According to the Quickbooks website, there are five major benefits of buying a franchise business as opposed to starting a new business on your own. First, a franchise allows you to benefit from the presence of an existing and well-established brand which, hopefully, has a good reputation. Second, those less experienced at running a business can benefit from comprehensive training and support offered by the franchisor.

Third, the franchisor’s purchasing power can help keep the cost of supplies low and ensure that you are competitive. Fourth, as a franchisee, you benefit from the advertising campaigns of the franchisor. This can be a considerable benefit since marketing costs can be prohibitively expensive for small business owners. Fifth, and finally, studies indicate that franchisees are more likely to succeed than independent businesses. The success rate is no doubt due to the fact that, when you become a franchisee, you are getting a format and system of business operations painstakingly developed by the franchisor.

While there are benefits to buying a franchise, the Federal Trade Commission observes that there are drawbacks as well. For one thing, you will be forking over to the franchisor substantial chunks of change in the form of royalties and fees. Moreover, franchisors usually exercise a significant degree of control over how franchisees conduct business operations. This control-designed to ensure uniformity-may greatly restrict your ability to exercise your own business judgment.

Do your research

Although buying a franchise may be less risky than a start-up business, having a franchise is no guarantee of success. Next Avenue advises that there are three evaluations which would-be franchisees should do before signing a franchise agreement. First, decide how much you want to work each week. Some franchises are open virtually 24/7 while others would require you to be on site 50 or 60 hours a week. By contrast, some franchises could be run on a part-time basis out of your home. You need to choose a franchise that “matches the lifestyle you want.”

Second, carefully read the disclosure document since this will set forth the fees, royalties and other costs you will incur. It will also tell you just how much control the franchisor will have over your day-to-day operational decisions. Third, ask current and former franchisees for their take on the pros and cons of the franchise you are considering. You need to elicit from current and former franchisees honest and frank answers about their own experiences and challenges in dealing with the franchisor. Their answers could alert you to any possible red flags.

Seek legal advice

If you are considering buying a business franchise, you should contact an Oregon attorney experienced in reviewing legal documents pertaining to franchises. An attorney can help you understand and assess the risks associated with a particular franchise business.

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Chenoweth Law Group