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To Buy Or Not To Buy: That Is The Business Franchise Question

Ever think about buying a business franchise?  There are as many good reasons for not doing it as there are for taking the plunge.

Franchises are everywhere.  There are literally thousands of franchises available in the United States, from Subway, McDonald's, Wendy's, and Burger King to Jiffy Lube, Good Feet, Yum Yo's Yogurt, Ace Hardware, Domino's Pizza, Real Property Management, and Merry Maids.  Some franchises cost a ton of money, while others are relatively inexpensive.  And there are franchises for almost every type of business, from fast food to fancy cars.

So how do you choose one that's right for you?  Carefully, very carefully. First, you must do a tremendous amount of research into the available possibilities. Owning your own business can be very rewarding, but be sure you know what you're getting into, because it also can turn into a nightmare.

Your research should include financial, legal, and accounting aspects of potential purchases.  Location is vitally important.  Will your franchise be in an area that will provide sufficient customers to make it a financial success?  The biggest questions--and the most important--are how much the business will cost, how much money you have, and how much money you can raise.

With all of that in mind, consider these six reasons, provided by Entrepreneur Magazine, why a particular franchise might be a good buy:

  1. Track record of success.  Any good franchise company has developed a method of doing business that works well and produces successful results.
  2. Strong brand.  One of the biggest advantages of franchising is that the company is building a brand on a regional or national basis that should have value in the eyes of customers you're trying to attract.
  3. Training programs.  A good franchise company has training programs designed to bring you up to speed on the most successful methods for running the business.
  4. Ongoing operational support.  Franchise companies have staff dedicated to providing continuing assistance to franchisees.  You're not alone when you're building and running your business, and you always can call on experienced people when you hit a rough spot or want to share new ideas for growing the business.
  5. Marketing assistance.  A franchise company has marketing assistance to provide you with proven tools and strategies for attracting and retaining customers.
  6. Real estate assistance.  Most franchises have manuals and other documentation, as well as staff, to help you find the right site and negotiate the best possible deal on your site.

But here are six reasons why you may not want to buy:

  1. Expensive startup costs.  You may have to pay a nonrefundable franchise fee of several hundred thousand dollars before you incur the other usual costs of opening a business.  This can be critical in the profitability outlook for your business, which on average can take two or more years just to break even.
  2. You aren't really the boss.  The franchisor sets many of the rules and regulations for operating your franchise, including prices and the appearance of your business.  These limitations may be acceptable, however, because you chose the franchise in the first place, believing it to be the best fit for you.
  3. Unwanted competition.  You may look out the front window of your business one day and see that a franchise operation just like yours is opening directly across the street.  This is possible, and happens too frequently, because many franchisors reserve the right to sell their franchises anywhere they please.
  4. Royalty payments and advertising fees.  A franchise business usually has to pay monthly royalty payments to the franchisor.  These usually are based on a percentage of your sales and come out of your profits.  Many franchisors also assess advertising fees, but your contributions may or may not be used to advertise your franchise.  A court has ruled that a franchisor has no fiduciary duties to its franchisees.
  5. Poor legal recourse.  A franchisee has little legal recourse in case of a dispute with the franchisor. Most franchisors require franchisees to sign agreements waiving their legal rights under state and federal law.
  6. Price rigging on supplies.  Many franchisors dictate where and from whom you can buy your supplies. Most franchisors get kickbacks from vendors, resulting in higher prices for you.

If you are thinking about buying a franchise, we can help you make an informed decision and help you consider possibilities for raising sufficient capital to operate the business.



INDEX
  • Six Tax Items For Small Businesses
  • Now Is A Perfect Time To Open A New Business
  • Do You Know If Your Business Really Is Small?
  • 4 Estate Issues For Business Owners
  • Self-Employed? Map Out Tax Details
  • 10 Easy Steps To Take If Opening A New Business
  • To Buy Or Not To Buy: That Is The Business Franchise Question
  • Ever Considered Helping Your Adult Child Open A Business?
  • Do You Know What Kind Of Business Not To Open?
  • Do You Plan To Move Your Business To A New State?
  • Dispel These 7 Popular Myths About Retirement
  • 4 Retirement Plan Options For Your Small Business
  • Are Stocks Overpriced And Forming A Bubble?
  • 4 Steps To Creating A Dynamic Business Budget
  • Can An Underfunded Small Business Startup Be Successful?
  • What Happens If You Have Excess Capital Losses?
  • This Is Not Granddad's 'Defined Benefit Plan'
  • Despite Much Pessimism, Slow Growth Persists
  • How To Take Your Section 179 Deduction To The Max
  • Squeeze More Out Of Bonus Depreciation Deductions
  • A Common Error In Powers Of Attorney
  • For The Self-Employed: 4 Retirement Plan Choices
  • Which States Are The Most Friendly To Businesses?
  • How Economic Myths Distort Investment Outlook
  • Don't Forget About Roth 401(k)
  • REITs: A Great Diversification Investment
  • Shopping For A Bank Account That Pays The Highest Possible Rate Of Interest
  • The Twenty Top Tax Breaks In The New 2010 Tax Act
  • Investing Defensivley Does Not Mean Deserting Stocks
  • 401(k) Alternatives For Business Owners
  • Tax Court Okays Deducting Cost Of MBA
  • Employers Find Ways To Mitigate Liability On 401(k)s
  • Working Longer: What's A Post-Retirement Job Worth?
  • Slash Taxes By Swapping Like-Kind Assets
  • Transferring The Family Business To Your Heirs
  • Business Owners Get Big Tax Cuts In Recovery Act
  • Move Fast To Corral Emergency SBA Loans
  • Risk Management
  • Estate Taxes And The Obama Administration
  • Gifting A Business Can Cut Estate Taxes
  • A Little Bond Logic Yields Insights
  • Avoiding The IRA Rollover Crackdown
  • Ruling Cites Business Owner Responsibility to 401 (k) Plans
  • Ruling Cites Business Owner Responsibility to 401(k) Plans
  • How Much Is Your Business Worth?
  • Managing Cash Flow In Tight Times
  • When Times Are So Scary, Opportunities Emerge
  • Avoid Being Accused Of Insider Trading
  • Lifecycle Funds May Pose A Hidden Danger
  • Funding A Friend's Business Venture
  • Beware Of Social Security Identity Theft
  • Regulatory Guidelines Update
  • Small Business And Work Opportunity Tax Act
  • The Oil Patch Profit Squeeze
  • Free Credit Reports Available Online
  • Understanding the Importance of a Fiduciary Standard
  • Energy Systems Scale and Timeline
  • Timber As A Liquid Investment
  • Timber Facts
  • Emerging Market Food Consumption Growth Equals Rising Prices
  • Bank Loan Funds - A Primer
  • Ethanol: Salvation or Panacea?
  • Emerging Market Food Consumption Growth Equals Rising Prices
  • A Primer On Managed Futures
  • Identity Theft: What Documents Should You Shred Or Store?
  • The Case For Industrial Metals
  • Total Credit Market Debt (All Sectors) As % Of U.S. GDP
  • Know The Score
  • REITS: A Very Good Portfolio Diversifier, But Should You Invest In Them?
  • Does Investing Internationally Still Diversify Your Portfolio
  • Another Way To View The Current Valuation Of REIT Sector
  • Understanding Risk-Preparing For The Unseen
  • Bank Loan Funds: A Great Fixed Income Investment As Interest Rates Rise
  • What Is Shorting Expense?
  • How Dangerous Is A Dollar Crash?
  • How Volatile Can The Stock Market Be?
  • GMO 7-Year Asset Class Return Forecast Is Bleak
  • Too Many ''Phish'' In The Sea
  • Identity Theft In The New Year
  • Ways To Improve The Score
  • To Reinvest Or Not To Reinvest
  • Why Not Alternative Fixed Income Investments?
  • Just How Expensive Is The Market?
  • Beware of Brokerage Firms' Misconduct
  • Identity Theft : Correct Those Credit Reporting Errors
  • Risk-Controlled Investing
  • Q & A With Robert Arnott
  • Identity Theft : Applying For Credit? Better Check Your Credit Report First
  • Identity Theft: Everyday Prevention
  • Identity Theft : Help Is On Its Way
  • Identity Theft: Tips To Protect Yourself
  • Identity Theft : Don't Fall For That E-Mail!
  • Identity Theft : One More Reason To Protect Your Credit
  • Identity Theft: A Note About Social Security Numbers
  • What Do Rising Interest Rates Mean For Money Market Yields?
  • Exit Gracefully: How Business Owners Should Plan For A Comfortable Retirement
  • Section 529 Plans Are Popular But Not The Only Way To Go
  • The Importance Of Commodities In A Portfolio
  • A Tale Of Two Hedges
  • IRS Refuses Change Of Section 179 Election To Expense Depreciable Property
  • Small Businesses Need To Be Aggressive On Costs
  • Your Medical File Report May Need A Check-Up
  • Do It Yourself Tax Preparers Watch Out: Tax Answers From IRS Centers Oftentimes Are Incorrect And/Or Insufficient
  • Home Office Deductions: Hoops To Jump Through
  • Property Tax Challenges Should Not Be Overlooked
  • The IRS Will Follow Your Wealth To The Ends Of The Earth
  • Year-End Tax Defferal Planning
  • How To Find A Great Financial Advisor
  • Is It Time To Find A New Financial Advisor?
  • What Is Risk?
  • 4 Steps To A More Secure Investment Portfolio For Your Retirement
  • Traditional Investing May Decrease Your Retirement Lifestyle
  • Year-End Tax Planning Can Help Generate High Return On Investment
  • Businesses Receive Temporary Depreciation Bonus
  • Understanding Deflation
  • Is Your 401(k) Plan A Failure?
  • Succession Planning: Developing A Plan For Your Business
  • The ERISA Retirement Plan Law Spells Out Fiduciary Issues
  • Evaluating The Quality Of A Company's Earnings
  • Investing In Times Of Uncertainty And Risk: The Importance Of Diversification
  • Tax Issues To Consider When Buying A Long-Term Care Policy
  • Yesterday's Great Companies
  • Businesses Should Be Aware Of States' Use Taxes
  • Expanded Retirement Plan Contribution Limits Create New Opportunities For Business Owners
  • Succession Planning: Developing A Plan For Your Business



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