We see a franchise as a business opportunity, but it also can become a liability if not executed properly. Before any franchisee would like to enter into a commercial agreement with a franchisor, they must be aware of the basics of franchising. The Federal Trade Commission (FTC) governs the laws of franchising in the United States; these are a wide range of state and federal regulations enacted to maintain sovereignty over international and local businesses nationwide. The FTC covers three definitional terms for a business opportunity to be considered a franchise.
A franchise must have a trademark that serves as an identifier for its products and services. A trademark provides the franchisee reliability and recognizability. The franchisor does not need to have ownership rights to the trademark but must at least have the legal right to use and allow others to use it.
Control and assistance
Significant franchise control and assistance begin from the entire creation of the franchise as well as the materials used and the operations that follow. A franchisor must guide you through the following:
- Choosing the proper location
- The design concept for the physical store
- Manufacturing skills and practices
- Accounting and personnel methods
- Inventory techniques
- Store schedule
- Business training programs for you and your staff
If you are a first-time franchisee, this might also be your first time managing and operating an entire business. They must give you guidance whenever necessary. It is not enough to acquire and execute a franchise; quality control plays a large part in its success.
Before the FTC amended the Franchise Law in 2007, a foreign franchisee had to invest $20,000 before becoming a part of a franchise. Now, the law only requires a deposit of $500 before or during the initial 6 months of business operations. However, this is only the minimum amount for joining the franchise and will be considerably higher when purchasing everything else that comes with the business acquisition.
Purchasing a franchise is a large endeavor to undertake. Familiarize yourself with all the basics so that your franchise is built on solid foundations.