Buying a franchise business is starting a business but within the security of an existing framework and visibility. In most cases, you own the business but its operation is governed by the terms of the franchise agreement. It allows the buyer of the franchise to capitalize on a business format, trade name, trademark and usually a support system provided by the franchisor. Franchising is a way of starting a business with less risk, but it will still require hard work, dedication and sacrifice to be successful.
A franchise is a legal and commercial relationship between the owner of a trademark, service mark, trade name, or advertising symbol and an individual or group wishing to use that identification in a business. The franchise governs the method of conducting business between the two parties. Generally, a franchisee sells goods or services supplied by the franchiser or that meet the franchiser's quality standards.
Franchising is based on mutual trust between the franchiser and franchisee. The franchiser provides the business expertise (marketing plans, management guidance, financing assistance, site location, training, etc.) that otherwise would not be available to the franchisee. The franchisee brings the entrepreneurial spirit and drive necessary to make the franchise a success.
There are over 3000 franchised businesses in many business sectors including all kinds of restaurants, coffee shops, hotels, service business, printing, copying, retail, automotive, health and fitness, and many more. The challenge will be to decide which one is the best fit for you. Also, become familiar with the demographics of your community and which franchises will be a positive addition to the business community.
The ‘franchise” is purchased for a fee and most companies require that each franchise pays a percentage of gross monthly sales back to the parent company. It may be required that products and raw materials be purchased from the parent company as well. Various tangibles and intangibles such as national or international advertising, training, and other support services are commonly made available by the franchisor, and may indeed be required by the franchisor.
The Federal Trade Commission (FTC)
The Federal Trade Commission (FTC) provides regulatory guidance for franchise and requires all franchise companies to file the “Uniform Franchise Offering Circular”. If purchasing a franchise, you must receive the document at least 14 days before you are asked to sign any contract or pay any money to the franchisor or an affiliate of the franchisor. You have the right to ask for—and get—a copy of the disclosure document once the franchisor has received your application and agreed to consider it. Indeed, you may want to get a copy of the franchisor’s disclosure document before incurring any expenses to investigate the franchise offering.
Make sure you have a copy of the document in a format that is convenient for you, and keep a copy for reference. Read the entire disclosure document. Don’t be shy about asking for explanations, clarifications, and answers to your questions before you invest. You may wish to have an attorney review the document as well.
States vary in their regulation of franchises. The Wisconsin Department of Financial Institutions does regulate. Chapter 553 of the Wisconsin Statutes, the "Wisconsin Franchise Investment Law," was adopted in 1972 requiring franchisors to file their offering circulars with the state prior to any offer or sale of a franchise in the state.
For more information:
Wisconsin Department of Financial Institutions
Federal Trade Commission
U.S. Small Business Administration (SBA)