Posted on Oct 19, 2011
5 Tips for Young Entrepreneurs Considering Franchises
Depending on who you talk to, when it comes to young entrepreneurs franchises are either (i) the easy road to self-employment, (ii) micro-managed money pits, or (iii) something in between. I tend to favor the “something in between” characterization, and generally believe that the right person matched with a sound franchise system will have a reasonable chance of success.
Obtaining the right franchise opportunity, however, takes time and effort. This article outlines five important considerations for young entrepreneurs considering their first franchise acquisition.
1. Do Your Homework
Not all franchise systems are created (or managed) equally, and flat out some franchises are just better than others. Now, “better” is a pretty generic and subjective term, but there are certain characteristics that pretty routinely suggest that there may be real some concerns with a particular franchise opportunity. Some of the most obvious issues here are high rates of litigation with franchisees and proportionally high numbers of franchisees leaving the system, but there are other signs as well. Importantly, however, I will not blindly throw “new franchisor” into this category—the number of new franchise concepts is on the rise, and inexperience alone is not necessarily a prelude to disaster.
In evaluating franchise opportunities, there are several steps entrepreneurs can take to better inform themselves about an individual franchise system. There are resources available for performing comparative research, and contact information for current and former franchisees is provided in the Franchise Disclosure Document. The franchisor’s representatives should also be willing to field questions from qualified candidates about many of the material aspects of the franchise system.
2. Rely on Experience
One thing all entrepreneurs considering new ventures need to keep in mind is that there will always be someone out there with relevant knowledge and experience who can help guide you on your way. Purchasing a franchise is no different. Even if you are experienced in developing and running a new business, franchising has its own unique intricacies that countless lawyers, accountants, consultants and other franchisees have already dealt with before your time. Young entrepreneurs considering a franchise purchase should rely on these people for their experience and expertise. Doing so will help them hit the ground running in the best position possible to succeed under the franchise model.
3. Critically Evaluate Your Plans and Expectations
It is important for young entrepreneurs to remember that one aspect that makes a franchise very different from an independent small business is that most come with a 5-year, 10-year or longer binding contractual obligation to run the business, pay royalties, and comply with the franchisor’s standards and specifications. Ways out can be negotiated with some franchisors, and sale is generally an option if the business is successful, but generally franchisees cannot simply decide to move on if they get bored, or unhappy or unsuccessful.
Even beyond that, most franchise agreements contain non-competition provisions that extent two or three years after the franchise relationship ends. Accordingly, young entrepreneurs need to critically and realistically evaluate their goals and expectations before signing on the dotted line.
4. Understand and Negotiate Your Franchise Agreement
Because of the long-term and binding nature of the franchise relationship, it is absolutely crucial for young entrepreneurs to understand the terms of their franchise agreement, and attempt to negotiate appropriate concessions to reasonably protect their interests over the long haul. As mentioned above, termination rights and restrictions are critical provisions that need to be thoroughly considered. On a more day-to-day level, many franchise agreements have archaic restrictions on Internet marketing and use of social media, and irrelevant limitations that hinder your ability to succeed in today’s economy need to be addressed.
Understanding and negotiating the franchise agreement are fundamental tasks for any young entrepreneur considering a new franchise opportunity.
5. Meet Your Obligations
Finally, because franchise agreements are long-term binding commitments, and because failure to comply with the franchise agreement’s terms and conditions can have serious consequences, young entrepreneurs must be prepared to meet their obligations on a regular and consistent basis. Gone are the days of doing everything when and how you want to. This is not to say that franchisees serve at the leisure of their franchisors—far from it—but young entrepreneurs must be prepared to adopt and adhere to systems, procedures and deadlines that are beyond their control.
By understanding, negotiating and preparing for the consequences of entering into a franchise agreement, young entrepreneurs can better position themselves to succeed with their franchise ventures.
Jeff Fabian is a lawyer who represents prospective franchisees in evaluating and negotiating new franchise opportunities. Visit www.fabianlegal.com for more information, or follow Jeff on Twitter: @jsfabian.
This article is provided for informational purposes only, and does not constitute legal advice.
More from FranchiseHelp.com
- Top Pro Athletes Who Own Franchises
- 6 Questions for Potential Franchisees Considering Home-Based Businesses
- Best Franchises for Young Entrepreneurs
NEXT POST: 5 Mistakes Most New Franchise ...