Franchises allow would-be business owners to get a leg up on entrepreneurship by licensing a bundle of intellectual property to a licensee. Franchise agreements are nothing more than license agreements, which allow franchisees to use the franchisor’s registered trademarks, registered copyrights, patents, and trade secrets like client lists, business methods, training methods, distribution networks, propriety software, marketing methods, and the like in exchange for a royalty, in most cases. Having access to a proven business model gives franchisees a leg up when entering the market because the business model has already been proven, decreasing mistakes made by most entrepreneurs and making the likelihood of success greater. In addition, franchisor’s generally have greater resources that can be used for business development, making location choice and consumer demand less of an issue. The most important benefit of franchising is that the business has public recongition and acceptance on day one. Franchisees benefit from economies of scale in the network of other franchisees that collectively market the franchise, as well as the franchisor’s marketing efforts. Franchisors, in turn, expand their brands and increase their revenue, without the need to invest vast sums of money in additional locations.
If you are a person who would like to own a business but doesn’t have a fresh new product, service or idea, franchising may be for you. If you are an entrepreneur with a proven business model, franchising may also be for you.
FRANCHISE AGREEMENT & fdd DRAFTING
Once your business model is developed and you have secured intellectual property protecting that business model, your business can become a franchise. State and federal laws require franchisee agreement to fully disclose everything being provided by the franchisor to the franchisee and must also make certain disclosures to franchisees.
Franchisors are also required by the Federal Trade Commission (FTC) and most state laws, to describe and point out specfic information within the franchise agreement to potential franchisees in a franchise disclosure document (FDD) at least ten days prior to execution of the franchise agreemnent.
Certain states also require additional disclosures and registration.
We draft franchise agreements and FDD’s for clients at on flat rate, flat fee basis, which include registration.
FRANCHISE AGREEMENT & fdd Review
For those chosing to enter into franchise agreements to become franchisees, we review franchise agreements and FDD’s and break them down into a language that our clients understand.
We review the franchise agreement and FDD, mark up the document, and point out any red flags, areas of concern, or information that is of importance. This service is billed at the standard hourly rate.
1. Can I franchise my business when I don’t have a trademark?
2. As a franchisor, how much can I collect in royalties.
3. Do I need an attorney to review the franchise agreement when there’s an FDD?
4. I’m having a dispute with my current franchisor, can you help?
5. What are the top 10 red flags for franchisors?
6. What must be disclosed in the FDD?
Technically, yes. You may franchise your business if there is something proprietary for you to licensee and offer to potential franchisees, like a business method, training method or materials, or consumer lists. I would recommend that an intellectual property portfolio be developed prior to the drafting of the franchise agreement, however.
That’s a business decision, 3-9% is standard in most industries, but it depends on what you have to offer and how much your franchisees are willing to pay.
Yes. Just because the law requires certain disclosures and there are certainly laws in place to protect franchisees, does not mean that franchisor’s follow these rules, or that just because the rules are followed, the franchise is a good idea. You need a trained eye who has reviewed dozens of franchise agreements to give the franchise a good review.
Take a look here.
Take a look here.