Philippine Business Today

What a Franchisee Needs to Know

The first thing a potential franchisee needs to know about is the UFOC (Uniform Franchise Circular Offering). The UFOC, by law, is a document that a franchisor or franchise broker must present to the person who is seriously considering buying a franchise. It contains extensive information about the franchise being considered. Additionally, you must be provided with completed contracts covering all material points at least five days prior to the actual execution of the documents. This time gives you the opportunity to review contracts with a lawyer and provides a cooling off period to ensure your final decision is not only emotional, but rational as well.

How Much Will You Earn?

Everyone wants to know how much money they will earn before they actually buy a franchise. Legally, a company must decide whether or not they want to estimate the amount of money a franchisee will make. If they choose to make an estimate, they must have documented proof that most of their franchised locations are that successful. Most franchisors will not make earnings claims to prospective franchisees, but you can find out if the company you are interested in has an earnings claim by looking at their UFOC. Earnings claims will always be Item 19 in any UFOC.

If, however, a franchisor states that you will "earn a lot", without any proof or an actual monetary amount, they are puffing. Puffing is legal, but not necessarily ethical. If, on the other hand, a franchisor gives you a set amount that you will earn or even states that you will earn six-figures, without any proof, this is not only unethical but illegal.

Franchise Vs. Unique Business

Some may ask, why a franchise? Why not create and open your own, completely unique business: A concept that is fresh and new to your community? The simple fact is that Americans are extremely mobile and always on-the-go. In such a society, people have come to truly appreciate and depend on the consistency of franchised products and services. The proof is in the facts - during economic hard-times, the franchise industry always prospers. People want familiarity and they know that the quality will be the same wherever they happen to be when they use the products and services of a specific franchise. Clearly, a franchise is a smart choice for the prospective business owner who wants to succeed.

Questions, questions, questions...

Whether you're buying a start-up franchise or an existing one, you will want to speak with at least 10 franchisees. Preferably, choose the franchisees that your franchisor does not suggest you talk to, and get in touch with former franchisees (listed in the UFOC) to find out why they left. It is required that the franchise agreement lists all franchisees, so names will be available to you, and you should choose a diverse range of people (franchisees from different areas of the country and from different market sizes). You can find out lots, if you ask many questions.

Can the franchise agreement and provisions be negotiated?

It all depends, and this is a situation where you want a good franchise lawyer to sit down with you and go over every detail of the agreement you are planning to sign. In some states, a franchisee must sign a copy of the exact agreement on file with the state. In other states, this is not the case at all. Some franchisors will not negotiate anything. Other franchises might negotiate everything from price to retail space décor. Find a good lawyer and talk to your franchisor before you decide to buy the franchise.

How does a franchisor make money?

Typically, a franchisor sells the right to a franchise for an initial flat fee called the "franchise fee". This fee is in addition to the actual costs associated with opening a franchise unit in one's local market. Then, the franchisor will often receive ongoing payments, such as royalty fees, taken as a percentage of sales. Many franchisors will also sell supplies and/or services to their franchises.

Keeping It All in the Family

It is perfectly acceptable to ask family and friends for financial help. Your friends and family know and trust you. Borrowing from family is a common practice and often the results are positive. Keep a few things in mind: Friends and family may be quite intrusive. They are not professional business partners, even if they may act as such financially. You will probably want to give friends and family some equity in your franchise. Additionally, if your business happens to fail, there may be hard feelings from personal business financers. If you can handle these factors, funding through family and friends may be a perfect choice for you.

Ongoing Training is Integral

Training doesn't stop when you open the doors to your franchise. You should expect your franchisor to provide you with ongoing training, as well as the rollout of new products, equipment, techniques for running your business, and so much more. These services and support not only make it easier for you to run your business, but they also keep a company and a brand at the top - making products more popular and individual franchises continuously successful. You shouldn't expect less as the owner of a franchise.

Can the franchise agreement be terminated or not renewed?

It all depends on the terms of the specific agreement and the extent to which the franchisor and franchisee have complied with the agreement. For example, if you start selling random or unapproved items, your franchisor may terminate your agreement, legally. Similarly, if your franchisor is not delivering all components of the franchise program as promised, you may have the right to terminate the contract. Additionally, the franchisor has the right, in most cases, not to renew your contract if they are not happy with the way you've run the franchise during the contracted period of time.

Franchisees Can Help Their Franchisors With Public Relations

Franchisors typically love active, team-oriented franchisees. A successful franchisee knows how to boost their public image by helping out in the community. Sponsor a little league team, or organize an event to benefit a charity. When you do so, remember to let your franchisor know! Not only will such a good deed bring more exposure to your franchise, but it will help with brand-recognition as well. Additionally, your franchisor will probably want to write up a press release, or in the least, they will include what you've done in a newsletter to all franchisees: Showing them an example of great public relations.

Having Problems Getting a Loan?

If you're having problems getting a loan, there are SBA loans that are easier to receive, if you meet the SBA's special criteria. For example, there is a program available which is designed to assist minority and women borrowers in developing viable loan application packages (7(a) Minority and Women Prequal). Find out more by searching for information on the Internet, and by contacting a financial expert.

Communicating With Your Franchisor is Key

In franchising the relationship between franchisor and franchisee is key. Like the effort a husband and wife must give to their relationship, the franchisee and franchisor's relationship is one that is complicated and intense. Communication is essential. When a franchisee has good communication skills, they will not only have a strong relationship with their franchisor, but they will also be able to have sound relationships with their customers and possess effective management skills as well.

Paper Trails Are Important!

A quality franchisor will have a paper trail, for example, a history of sales, financial statements, advertising, publicity and so on. While it's illegal to guarantee a set yearly income, they should be able to provide you with estimated start-up costs, the price of products, the typical closing ratio and more. If access to a paper trail is not offered, ask! Any reputable franchise company will be glad to give you the facts and figures you ask for.

FTC's Franchise Rule - Did You Know That It's Required?

This rule was put into effect on October 21, 1979 by the Federal Trade Commission and requires that covered franchisors supply a full disclosure of the information a prospective franchisee needs in order to make a rational decision about whether or not to invest. The disclosure must take place at the first face-to-face meeting where the subject of buying a franchise is discussed. If this does not take place, say something to the franchisor. It is the law!

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