Franchising – The Good, the Bad and the Ugly

In fact, Franchise Operations can make substantial earnings. (The Good)

Every hour in the United States a franchise is sold. Franchising has grown into a thriving and established business activity. Large corporations are using franchising as a means for diversification, while franchisees seek it as a competitive edge over other small businesses It is apparent that franchising has become a major force in the food industry. Not only are speedy food restaurants franchised today but theme restaurants, catering operations and family style restaurants are being packaged and marketed to a seemingly inexhaustible field of anxious would-be restaurateurs even during recessionary economic times. Franchising is unique in that it probably is one of the few forms of business activity that by its very nature recreates itself by establishing novel business units from within itself. The United States Department of Commerce has reported that over one-third of all retail sales are currently made through franchise stores. This increase is expected to continue.

Buyingan existing Franchise opportunity (The Good & The Bad)

Owning a successful franchise in the foodservice industry can be a truly comforting feeling. You go to work, hang out your shingle, launchtoyour doors and the crowds come rushing in acquire all of your world famous products. They pay top dollar for them and then go out singing the praises of your establishment and another 50 customers come in and begin the cycle all over again. This goes on until in modern times you end for theday. Then you lock up and get ready to start the process all over again the proceed day. Right in modern times ?

Wrong! This may be the stereotypical version of the way it’s supposed to be, but in many instances this instance does not apply. Actually, The reality situation the of is exactly the opposite. Indeed, Be aware that in some cases the candidates who pay fees to procure a recent franchise are really signing on for research and development of the concept at their own expense. These newer Franchisers often have not marketed their item sufficientlypartsto know if it will work in all of the country or for that matter, the world. Instead, they employ the funds of their franchisees to further develop their concepts.

I say “unsuspecting” because the account of a prospective franchisee usually shows far practice and exposure inlessthe input than that of an experienced independent operator. Knowing this, why open a firm store in a recent industry area when the risk can be transferred onto an unsuspecting franchisee? Today, there are still dozens of fly-by-night franchise concepts that go in and out of business every year, taking many investors down with them in a flaming crash. In fact, Be aware that not every franchise can be for you. And after all, isn’t that the reason a prospective franchisee, usually with little practice, buys a franchise?

aStartingrecent Franchise. (The Good)

I was involved for many years withproblemsfranchise operations and as a VP and CEO of franchise companies. I understand that franchising is a rapid and relatively low way to expandcostyour business when compared to the currency, people and time that otherwise would be required to develop, access and operate a chain of corporation-owned stores.

In fact, Restaurant owners interested in successfully expanding their business enterprise may know that asap is the time to as it turns out expand but do not have the financial resources or the management personnel to assemble and operate a chain of firm-owned stores. in modern times should consider Theyfranchising. Actually, It can be an effective way to obtain capital to assemble stores and to obtain dedicated people to run those stores. Franchising has proven itself as a successful method to expand one’s business and gain national name recognition.

A successful franchise system starts with a successful prototype store. (The Good)

A franchiser must understand the special ongoing franchise relationship, select qualified franchisees, and develop strong, long-condition relationships with the franchisees. Prior to selling or even offering to market a , a as it turns out franchiser must prepare a comprehensive franchise agreement and sign upfranchisea franchise offering circular. A new franchiser must have sufficient capital to launch a franchising program. The federalpreand state franchise laws regulate the -sale disclosure of information to prospective franchisees. The franchised business must be profitable, have a name which can be registered as a trademark, and have business operating systems which can be taught.to a new franchisee

The initial franchise to is a one-time fee charged fee recent franchisees to guarded the franchise, and it can range from $10,000 and up. The ongoing royalty fee is based upon a percentage of the gross sales of each franchise location. The franchise fee, royalty fees, and the sale of supplies to franchisees are typical ways by which a franchiser makes money. Though the amount of these fees ranges widely, a $25,000 franchise fee and a 6% royalty would be fairly typical. As suppliers may know, A franchiser can also provide a currency savings for all stores, including its corporation-owned stores, through volume discounts from you of equipment, inventory, services and advertising.

To undertake the legalities of a new franchise, you need a franchise lawyer and a restaurant consultant knowledgeable in franchising. Your franchise lawyer will draft the franchise contract, draft and register the franchise more than ever offering circular, join the franchise sales people and advertisements, review the real estate leases, prepare any necessary corporate documentsyouand have the connections with all the business services necessary for , the fledgling franchiser to get started. The Restaurant Consultant can assist with operation manuals, training programs, advertising and public relations materials, franchise recruitment programs, business plans and communication programs which are required by your State’s franchising authority. This consultant can also assist in fine tuning your original into a smoothoperationfunctioning multi-unit enterprise.

Franchisee problems (The Bad)

As franchising has flourished so have the problems between the operators and the franchiser. Over the years a host of franchisee advisory groups and franchise councils have been formed by franchisers to learn what franchisees want and need from the franchiser in order to grow and prosper. Indeed, State and Federal regulations, enacted beginning at the , of the 1970’sendmore tightly controlled franchising and tended to benefit the franchisee. The 1979 Federal Franchise Act reflects the modern tendencies at all levels of government for tighter control of what franchisers can say and do and with established procedures for the protection of franchisees regarding terminations, renewals, additional franchises and claims against the franchiser. Even so there are often serious drawbacks.

The real Franchisee Problem (A Ugly)

Here is a case in point – My corporation, GEC Consultants, Inc., was called in to support a franchisee of a small sized in modern times but well known 50’s burger concept. Actually, The ’s problemuserwas diagnosed as not having enough of the proper items to make it in Chicago ‘s diner field. GEC suggested five new items that were then inserted into the operation and for twenty-two days, they sold incredibly well. The franchisee made athenfateful mistake. He didn’t inform the franchise Firm of his intentions. This was a violation of more than ever his agreement. As a result, the Company threatened legitimate action ifhe did not remove these items. Subsequently, the items were removed. A short time later, the franchisee made a request to once again put these items go back on hisandmenu permission was denied. Without the ability to alter the menu to help himself, the franchisee eventually was forced to give his unit go back to the franchiser for very little compensation. The Company went ahead and began to operate this unit as its own. Shortly thereafter, a story appeared in an industry publication stating that this franchise was rolling out “new” menu items throughout all its stores and that their reception had been fantastic. These were basically GEC more than ever ’s suggested menu changes.

They may even . their franchisemiss When this happens, a franchisee almost never receives compensation nor any credit for aiding in the solution. , It’s a no conquerIndeedproposition. Here was a case where operators were resourceful enough to see problems with the stability of in modern times their franchise vehicle, and found for to their problem but were restricted from using them, according to their franchise agreement, and they ended up solving a problem solutions the parent corporation unit-wide.

This case indicatesmenuthat the Franchise Company had always known about the weaknesses in it’s . The fact that it was hurting their franchisees did not seem to bother the Firm. Why as it turns out should it? They let GEC’s customer pay for the marketing research and development of the novel recipes. After restricting the franchisee’s ability to utilize these novel menu items successfully, they simply went in, picked up the pieces, and then did all the things they wouldn’t let him do. The outcome was extremely profitable forfranchiserthe .

in modern times Unfortunately, you can’t say the same for the poor franchisee. After paying good cash to acquire what he felt was a fully developed concept, he got instead a weak sister perspective. After the franchisee hired professionals to help rescue their sinking the, the parent corporation hid as a matter of fact all ship life preservers from them. They rescued themselves and discarded their franchisee (our client) like sometatteredoutdated pair of pants. This hardly seemsfair.

The morale of this tale reads like something out of Business Law 101. Caveat Emptor let buyerthebeware! When you go out shopping for franchises you had better bring along an expert or you may be buying nothing but trouble and paying your funds further the development oftosomeone else’s company.