Build your franchise the right way

If your business has done well, your next step may be expansion through franchises. The Law Offices of David L. Leon, PC works with businesses who have identifiable trademarks and proven methods. Attorney David Leon’s experience can show you the path to expanding your brand and receive percentages from franchisees.

Franchises and licenses in Texas

You can sell a copy of your business in different ways. A franchise typically refers to a business opportunity where the franchisor retains strict control over how the business is operated. This includes the use of the company's trademark (called a license). However, a company may wish to allow another company to use its trademark, but not necessarily run its business. This wouldn't be a franchise but a mere right to use a trademark.

Can your business be franchised?

It depends on the kind of business you have. Does your business rely solely on your know-how and expertise? Or can you make a model of your business that can run without your constant supervision? If your business model lends itself to being easily being cloned, such that you can train individuals how to run the business with minimal supervision, then the business might be one that can be franchised. In order to attract franchisees, the business should either be established or have a unique concept or product that will give it a competitive advantage.

Setting up franchise agreements

A UFOC is a Uniform Franchise Offering Circular. This is a federally mandated set of disclosures that franchisors must give to potential franchisees. This includes information about the franchisors, estimated costs, and information about the franchise agreement. Note that many states require additional disclosures on top of the UFOC. UFOC is the old term and has been replaced with the term FDD, which stands for Franchise Disclosure Document. They are essentially the same thing.

A franchise agreement is a lengthy contract between a company that has a specific formula to operate a business (called the franchisor) and a company wishing to copy the formula (called the franchisee). Typically, the franchisee will pay a percentage of sales to the franchisor, known as a royalty.

Differences between UFOC and franchise agreements

A UFOC is typically a short synopsis of some key terms contained in the franchise agreement. The franchise agreement itself governs the relationship between the parties. If you would like to discuss your matter to learn how these could help your business, you will need an attorney well-versed in franchise law. Contact the Law Offices of David L. Leon, PC and see just how far your business can go.

Is buying a franchise right for you?

If the franchise is done properly, then quite a bit of the initial work has been done for you. In many franchises, the franchisor has developed a working business model and has know-how that will help get your new business moving.

One drawback to franchises is that they are expensive and have high startup costs. Franchises usually remove control over the business from you. You also must pay royalties on your sales in addition to franchise fees and other costs.

The cost of buying a franchise

There is no standard cost to buy a franchise. However, there are common fees and types of fees. Some of the more common costs are:

Initial franchise fee

This is typically a non-refundable initiation fee you pay to the franchisor. This fee is simply for the privilege of doing business with the franchisor. It also helps to eliminate those who cannot otherwise afford to own or operate the franchise and creates a valuable incentive for purchases to stay with the franchise.

Royalty payments

This is typically a percentage of the gross sales of the franchisee. In most cases, the franchisee is expected to pay this fee regardless of whether or not the franchisee is profitable.

Commercial lease

Although this is usually not a fee paid to the franchisor, it can represent a significant initial outlay and a substantial commitment. Most, if not all, commercial leases require a personal guaranty, and at least a 3-year term. In some markets, it may be possible to negotiate the terms with the landlord and to have the landlord finance part of the build out for some of the project. For more information about commercial leases, please visit DallasOfficeSpaceOnline.com, an affiliated site committed to assisting people with locating commercial leases in north Texas.

Initial inventory

You will typically have to stock the initial location with a specified amount of inventory to sell.

Advertising

The franchise agreement may require you to spend either a specific sum or a percentage of your sales toward advertising costs.

Furniture, fixtures, and equipment

This typically includes specialized equipment, such as electronic cash registers and computers, and may also include specific types of decor and furnishings.

Learn if franchising is right for you

If your product or service is successful in one place, why not let others put it to the test across your market or another? Set up a consultation with franchise law attorney David Leon.
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Assistance with distributorships

A distributorship is a relationship in which a supplier allows a distributor to sell its products for it. Many times, this includes the right to use the manufacturer's trademarks.

Franchisor control over franchises

The look and feel of the franchised business is one of the most prized and highly protected parts of the franchise system. Accordingly, many franchisors have tight controls on what the franchisee can do with the franchise. On the upside, this ensures that franchisees stick to a (hopefully) proven and reliable system for profitability. On the downside, this may severely hamper the franchisee from exercising business judgment.

Some of the controls that a franchisor may exert include:

  • Site selection
  • Layout and decor
  • Goods and services offered
  • Business methods
  • Territory

Length of franchise agreements

There is no standard length for a franchise agreement. Typically, the amount of the franchise fee correlates to the length of the franchise. Typical time periods are five, seven, ten, and fifteen years. In most cases, neither side can terminate the franchise agreement absent a mutual agreement, a breach, or some other pre-defined event.

Ending a franchise

There are several ways a franchise can end. The franchise may end on its own terms (i.e. the franchise was for a 5-year term and five years elapses).

In most franchise agreements, the franchisee may elect to renew the franchise for an additional time period by paying an additional fee to the franchisor at the end of the term. Franchises may also be terminated by agreement of both the franchisor and franchisee.

In some agreements, the franchisor has the option to purchase the franchise from franchisee. Finally, franchises may be terminated if one or both parties breach the franchise agreement. This often leads to expensive litigation on both sides.

Getting started with franchising a business

The first step is to map out how you are going to franchise the business. You need to be concerned about the products you sell, how you sell them, and the places you will be selling them. You then have to address logistics: how will the products be distributed and sold? How will you sell the franchised system to franchisee? You will also need detailed financial statements and other materials about the business for your offering circular. Many of these issues should be identified prior to drafting the franchisee agreement. Also, you will need to comply with various state and federal disclosure rules.

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Gain a clearer understanding through an attorney who can lead you through the process of determining if a franchise is right for your business.