Buying a Franchise – Tips From an MBA Franchise Attorney and Former Franchise Owner

BUYING A FRANCHISE VERSUS STARTING AN INDEPENDENT BUSINESS
As a franchise attorney who has owned and operated a successful franchise, I can say buying a franchise represents a different approach to starting a business. Millions of people dream about owning their own business. Having the independence that being your own boss brings, the security that no one can fire you, hopefully 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 making it at all. An endless stream of problems makes competition from large, sophisticated chains just too intense. Most new start-ups end as failures.Buying a franchise business opportunity may help level the playing field. The U.S. Department of Commerce claims a opportunity is “…the best chance to compete with giant companies that dominate the marketplace.” Some statistics are impressive: it is said over 40% of all U.S. retail sales are through franchised establishments. Giants like McDonalds, KFC, 7-Eleven, H&R Block and Radio Shack are familiar, household FDD names that people think about, and franchises are available in a wide range of industries.A CHANCE TO GET RICH, BUT ALSO A CHANGE TO GET STUNG
Just as franchising represents a chance to get rich, it’s also a chance to get stung. Everyone knows the big blue-chip names like McDonalds, KFC, Radio Shack, etc. But they’re the exception and not the rule. Many lawyers owner wannabes sign on with far smaller, lesser-known or unknown names that may not have a clue about helping operators make money.
Regrettably too many over-eager, first-time buyers leap into buying a franchise without using a franchise attorney who understands the in’s and out’s of relationships, the viability of the industry or company under consideration, and the long-term legal consequences of the contract they are signing.FRANCHISE DUE DILLIGENCE
Fortunately, with proper planning, research, investigation and sound Fr. advice, these risks can be minimized with the proper franchise due diligence and professional advice. Don’t wait until you’ve signed the contract to begin this process. By then, the window of fr. agreement negotiation has slammed shut and it’s usually too late to do anything.Using a franchise lawyer early on is the proper starting point. But don’t use any FDD attorney – find one who also has an MBA and you’ve narrowed the field considerably. You can Google the search term MBA franchise attorney. Now you’re dealing with someone who understands both the legal and business issues in buying a franchise. Good job, but don’t stop here. You can narrow the field even more by finding a attorney, with an MBA, who has also owned a franchise before. Buying a franchise advice is incredibly more meaningful when it comes from a former, successful franchise owner – as opposed to someone who never operated a franchise before. Try finding another franchise attorney who has owned a successful franchise.AVOID ILLEGAL DISGUISED FRANCHISES CALLED A LICENSE
An increasing number of unscrupulous companies that don’t fly straight or play by the rules are selling licenses that are really disguised, illegal franchises. Instead of providing a comprehensive FDD Franchise Disclosure Document that meets stringent federal and state legal requirements, these companies go a different route. They present a “license agreement” or a distributor agreement” with no disclosures, no audited financial statements, no background of the principals, no investment requirement details, etc. The franchise versus license situation is one that I often consult on as a franchise expert, after clients have lost their life savings, retirement accounts, etc. investing in a license or distributorship that is an illegal disguised franchise. Don’t go down this dangerous path.DEVELOP A FRANCHISE EXIT STRATEGY
Finally, and this applies to franchise investments as well as investing in any business venture, develop a plan to succeed but also an exit plan that minimizes financial risk in case things don’t work out. Both plans need to be developed before the investment is made and contracts are signed. Be sure your franchise negotiations reflect this planning aspect. Don’t wait until problems develop to begin thinking about a franchise exit strategy, like how can I cancel my franchise agreement or get out of my lease. By then it’s usually too little, too late.

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Top 10 Franchises For Sale in 2009

Checking Out Franchises For SaleEvery year, Entrepreneur magazine names its top franchises for sale, gathered up into a list called the “Franchise 500.” By referring to this list, prospective franchise owners can determine the top franchise for sale in any number of categories-the best fast-food franchise, the best auto service franchise, the best do-it-yourself picture framing franchise, and so on. This publication also names the 10 best franchises for sale regardless of the industry they are in, and it is this list that offers the most coveted ranking of all. The “next hottest franchise concept” certainly has a chance to advance in the standings. But year after year, the same companies continue to dominate this list, mainly because they have superb brand recognition, a solid financial base, highly satisfied franchisees committed to excellence, and products or services that have stood the test of time. As Entrepreneur sees it, here are the top 10 franchise companies for 2009.1. Subway
The top company on this list has gained a reputation for offering fresh, healthy food at very reasonable prices. They also come up with some very innovative national marketing campaigns to keep the name “fresh” in the public’s eye. Subway began franchising in 1974 and has more than 21,000 franchises in the United States. The company charges a franchise fee of $15,000, with ongoing royalties of eight percent based on gross annual sales. One’s total investment will run from between $78,000 and $238,000. Subway has franchises for sale in nearly every U.S. state.2. McDonald’s
Ray Kroc took a California hamburger joint owned by two brothers and turned it into the world’s largest fast-food restaurant chain. Over the years, McDonald’s has been an innovator from the aspects of both service and menu items, inventing such concepts as the kids’ meal and drink tops with pre-punched access holes. The company charges a franchise fee of $45,000, with ongoing royalties of 12.5 percent based on gross annual sales. One’s total investment will run from between $950,000 and $1.8 million. McDonald’s has a franchise for sale to residents of every U.S. state, plus worldwide opportunities exist as well.3. Liberty Tax Service
With the tax deadline of April 15 looming over the heads of U.S. citizens every year, more and more taxpayers realize that it pays to hire an outside expert to help them complete their filings. The company started as Jackson Hewitt Tax Service in 1972 (and began franchising a year later) and changed its name after buying out another tax business in Canada. The company charges a franchise fee of $40,000, with variable ongoing royalties based on gross annual sales. One’s total investment will run from between $56,000 and $70,000. Liberty Tax Service has franchises for sale to anyone living in the U.S. or Canada.4. Sonic Drive-In Restaurants
This company started as a root beer stand in 1954 in Shawnee, Oklahoma, jumping into the franchise business five years later. Today there are close to 3,000 Sonic Drive-In franchises across the country. The company charges a franchise fee of $45,000, with ongoing royalties ranging from two percent to five percent, based on gross annual sales. One’s total investment will run from between $1.2 million and $3.2 million. Sonic currently seeks out residents of Canada, New Zealand and Australia, offering exclusive territories in its franchise for sale.5. InterContinental Hotels Group
The flagship property in this massive chain is the self-named InterContinental, which include some of the most prestigious hotels in such world capitals as London, Paris, Vienna, Cairo, Nairobi, and many others. This hotel conglomerate also includes such familiar brand names as Holiday Inn, Crown Plaza, Staybridge, and Candlewood. There are more than 2,600 franchises in the U.S. alone, as well as another 800-plus in foreign countries. Franchise fees and total investments will vary widely, since every property is unique. The company charges an ongoing royalty of five percent based on gross annual sales. InterContinental has franchises for sale in Oregon as well as assorted worldwide locations.6. Ace Hardware Corp.
The neighborhood hardware store is alive and well in the guise of Ace, a national chain that prides itself on hometown values and helpful personnel who can tell you the best way to paint a door or repair a fence. The company began in 1924 and became a franchise operation in 1976. There are currently more than 4,200 U.S. franchises. The company charges an application fee of $5,000, and one’s total investment will run from between $400,000 and $1.1 million. Ace Hardware has franchise for sale opportunities in all U.S. states.7. Pizza Hut
In 1957, when this pizza chain started business as a single restaurant in Wichita, Kansas, no one would have suspected that it would grow into the largest pizza restaurant chain in the world. Today there are nearly 10,000 franchises in existence, including “express” and kiosk locations that expose Pizza Hut products to more people than ever. The company charges a franchise fee of $25,000, with ongoing royalties of six percent based on gross annual sales. One’s total investment will run from between $317,000 and $2.9 million. Pizza Hut has franchises for sale in Oregon as well as assorted worldwide locations.8. The UPS Store / Mail Boxes Etc.
Mail Boxes Etc. started in 1980 as a competitor to the U.S. Mail and has since expanded to offer all kinds of services that include the sale of packing materials, copying and printing, mailbox rentals, and shipments of darned near anything to anybody who has a permanent address. Re-branded as The UPS Store – although it ships by other carriers as well – the company charges a franchise fee of $30,000, with ongoing royalties of five percent based on gross annual sales. One’s total investment will run from between $155,000 and $295,000. The UPS Store has franchise for sale opportunities in all U.S. states, plus various locations worldwide.9. Circle K
This convenience store chain was founded in 1951 in El Paso, Texas. They waited until 1995 to begin franchising, but since then Circle K has seen its U.S. franchises grow to more than 450. Surprisingly there are nearly 3,700 franchises overseas. The company charges a franchise fee of $15,000, with ongoing royalties of four percent based on gross annual sales. One’s total investment will run from between $161,000 and $1.4 million. In a nationwide expansion mode, Circle K has franchises for sale across the United States as well as in assorted worldwide locations.10. Papa John’s International
This pizza chain got its start in 1985 in Jeffersonville, Indiana. Papa John’s has more than 2,100 U.S. franchises and close to 500 on international soil. The company charges a franchise fee of $25,000, with ongoing royalties of five percent based on gross annual sales. One’s total investment will run from between $135,000 and $490,000. Papa John’s has franchise for sale opportunities in all U.S. states.