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Benefits and drawbacks of owning a franchise

| Sep 17, 2016 | Buying & Selling Businesses |

Many people in North Carolina dream of opening their own business, and buying a franchise can be one way of making that dream a reality. Because a franchise comes with a recognizable brand and an established system for doing business, buying a franchise can streamline the process of opening a restaurant, retail store, car repair shop or other business. However, there are also some downsides that are important to keep in mind.

In exchange for the rights to use a company’s name, trademarks, suppliers, operating manual and technical assistance, a franchise owner must be willing to relinquish a lot of control to the franchisor. For example, a franchisor may have to pre-approve the business location before a new store can be opened. The design of the store, the types of goods that can be sold and the operating hours may also be restricted by the franchisor.

A franchise contract generally lasts for between 15 and 20 years, and the franchisor may choose whether or not to renew the contract when it terminates. During the franchise contract period, the franchise owner will have to pay royalty fees and advertising fees to the franchisor. There is also an initial franchise fee that franchise owners must pay in addition to regular business fees for operating licenses and insurance.

Due to the franchise fee and ongoing royalty fees, opening a franchise could be more expensive than opening an independent business. However, the established customer base and connections to product suppliers could be so valuable to the franchise owner that they make up for the initial expense. An entrepreneur who is interested in buying and selling businesses may want to talk to an attorney before opening a franchise.

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