Wednesday, March 25, 2009

Buying a Franchise

There are many misconceptions about franchising, but probably the most widely held is that you as a franchisee are “buying a franchise”. In reality you are investing your assets in a system to utilize the brand name, operating system and ongoing support. You and everyone in the system are licensed to use the brand name and operating system.

Why is it a lease? In any franchise deal the franchisee receives the assets upfront but only for a limited period of time--the term of the franchise agreement. The term of the agreement may run 5 or 10 years or, in some cases, only 1 or 2 years. At the end of the term, the franchisor decides whether or not the agreement will be renewed. The reasons for not renewing the agreement should be completely spelled out in the Uniform Franchise Offering Circular and franchise agreement.

An “ownership mentality” destroys the reason franchised and company-operated units are successful. Think about it. If you think you “bought” a franchise, you become an “owner” and begin to think and act like an owner. You will want to change the system because of your needs, you will wonder what you are paying the royalty for, and you will begin thinking of other franchisees as your competitors. For these and many other reasons you do not want to think of yourself as an “independent owner.”

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