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Franchises
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Article 6: What Franchisors Provide
Some things your franchisor
must provide. Others it should.
When buying a low-investment franchise, don’t
expect the same startup assistance, advice or
hard assets from your franchisor as if you were
investing in a high-end franchise. You get what
you pay for, but you may not need more.
“Usually the franchise fee and the royalty fee
is some indication of the amount of support the
franchisor is going to give,” says Mary Tomzack,
president of Franchise Help. “But this is not
always a negative. You don’t necessarily need
all that help.”
Buying a franchise means you get a complete
business system, not guaranteed success. The FTC
requires a lengthy disclosure document as well
as financial statements be given to franchisees
before purchase. Some states have even more
detailed regulations. The franchisor is
responsible for paying state filing fees,
printing, accounting and legal expenses, and
must develop internal controls and policies to
ensure compliance.
“A franchisor will provide some kind of
operations manual detailing how the system
works,” says Steven Toporoff, FTC franchise
program coordinator. “Typically it includes
trade secrets, like how to make the burgers…the
blood and guts of how to operate the system.
Some offer pre-opening assistance to help the
franchisee get the ball rolling. Some offer site
assistance to better determine where to open an
outlet based on demographics and other factors.
Some have ongoing training.”
According to the FTC, franchisors must provide:
- A copy of the Uniform
Franchise Offering Circular at least 10 days
before you sign
- A copy of the franchise
agreement, other contracts and franchisor
financial statements with estimates of initial
startup costs
- One week of training for
you and your manager in a parent store
- Operational manual
- Ongoing support
- Guidelines on audits and
assignment procedures
- Other criteria for
assignments, such as ownership rights and
rights to sell the franchise
- Initial fees and cost
information
The franchisor you decide to
do business with should provide:
- A marketing plan,
promotional materials and site selection
assistance
- Adequate insurance for
fire, inventory, burglary, workers’
compensation, accident and health, occupancy
and general liability
- A known trademark or
service mark, or advertising to make it known
- Guidelines on purchasing
inventory and equipment, restrictions on goods
sold and terms of agreement and renewal
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