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Buy Franchise Business

franchisee franchisor fees unit

Important things to know before you buy a franchise business.

Before you decide to buy a franchise business you should take a look at exactly what a franchise business really is; to do this we need to look at the franchise business in general and in particulars. Franchising is an expansive type of business that consists of an agreement between to entities involving the payment of royalties and fees, support and restriction, and a trademark license. The franchisor is the entity that permits the right to do business under their trademark or trade name to the franchisee. The franchisee is the entity that buys a franchise business and receives the right from the franchisor to do business under the franchise.

A franchise license agreement, between a franchisor and a franchisee, describes the franchise business relationship between the franchisor and franchisee; includes the use of trade names, trademarks, royalties, fees, regulations, and support. This is the legally binding written contract between the franchisor and franchisee. Business format and product distribution are different ways to do franchise business. The most widely used are business format franchises.

A business format franchise utilizes a franchisor’s strategies to conduct the business operations as well as the trademark, trade names, product, and service. However, product distribution franchises just sell the franchisor’s products and services with more franchise business operating independence. Also, the franchisee will use the franchisor’s trade name and trademark license. The franchisor must provide the rights and support to the franchisee.

This means the franchisee will have to pay the franchisor fees for these rights. Thus, the franchisee who wishes to buy a franchise business will use the trademark or trade name of a franchisor while paying certain fees to compensate for the support. In return, the franchisee not only brings in money to the franchisor, but also helps to expand the overall business of the franchise. There are many different types of franchise arrangements available to a franchise business owner.

An agreement between the franchisor and the franchisee to hand over the rights to run one franchise unit is a called a single unit franchise. This is the easiest type of franchise arrangement. A franchisee can also buy multiple single units after the first single unit is purchased. A multi-unit franchisee has the rights to run more than one unit.

A multi-unit franchisee can buy these franchise business rights by signing a development agreement with the franchisor for a specific number of units in a specific time frame. A master franchisee has more rights and responsibilities to the franchisor than any other. The master franchisee can sell certain franchises in a specific area as well as run them. The master franchisee can therefore receive royalties, fees, and the responsibility to train and support the franchisees under them.

When buying a franchise business you should know the important facts about your franchisor. You should get a copy of the franchisor’s disclosure document. The Federal Trade Commission (FTC), which regulates franchise business, has set their Franchise Rule so that the franchisor is required to give you their Franchise Disclosure Document (FDD) before you sign a contract. In the disclosure document you will be able to see executive history, litigation history, bankruptcy history, and many of the associated costs of running the business.

Such costs include: royalty payments, advertising payments, initial opening fees, business licenses, real estate, training, equipment, products and services, insurance, government fees, employee compensation, and legal fees. The disclosure document is only promulgated by the laws in certain states, not the Federal Government. In other states the franchisor does, however, need to comply with state registration in order to conduct franchise business there. This disclosure document is very complex and requires a good lawyer to review all of the sections thoroughly.

If a mistake has occurred after you have signed the contract with the franchisor it could be irreversible, and at the very least, costly. To thoroughly review all of your responsibilities under the franchise business contract, as well as the various laws and rules, you will certainly need a good lawyer to assist you. Be sure that your lawyer has had plenty of experience in helping franchisees buy franchise businesses. You can also use an accountant to help you track all monies being spent during the legal processes of the contract.

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about 7 years ago

Dear Sir,
This is Shanthuhiremath from Karnataka.
I am working as a CSR in Local BPO Industry. I want to have the knowledge about Franchising and its related terms for my professional Growth. The document of yours provided a good amount of knowledge regarding franchise, franchisor and franchisee. I wanted to know types of Franchise or different models of franchise. What are the agreements used in Franchise. What are the content of the franchise agreements and I need some sample documents of franchise that are related to BPO industry. Please if you have answers for all the above mentioned queries please revert beck.

Regards
Shathuhiremath