A franchisee licenses the right to do business under a franchisor’s brand using the franchisor’s operational processes. Franchisees receive access to the franchisor’s proprietary knowledge, systems and support, while being held responsible for maintaining the same brand and quality standards as the franchisor. The advantage to becoming a franchisee is that the costs of opening a franchise are often lower compared to starting a company from the ground up, and the franchisee inherits the proven, established business model and brand as opposed to starting a new one. 

A franchisee also is a person who pays fees — both royalties and upfront costs — to a business owner, called the franchisor, to operate a business under the franchisor’s trademarked name and business systems.

Both franchisors and franchisees take on various benefits, risks, and responsibilities when they form working relationships with one another. The franchisee must adhere to the franchise, so following the contract and operating under the provided guidelines are a must.

There are five main types of franchises you’re likely to encounter, each of which comes with its own opportunities and considerations.

Job franchises: These franchises often require low investment and low overhead; some may even be home-based. Typically, relatively little equipment or stock is required. Common examples include cleaning franchises, lawn care services and children’s services.

Product franchises: In this type of franchise, the franchise owner distributes the franchisor’s products. Typically, product franchise owners receive the franchisor’s trademark but none of their infrastructure. Automotive, machine and soda companies are common examples of product franchisors.

Business-format franchises: This is the most common type of franchise, since it significantly eases the franchisee’s burden. The franchisor gives the franchisee access to all their systems, including marketing, operations and training. Fast food and business service franchises are among the most common business-format franchises.

Investment franchises: These franchises require franchisees to invest their own capital. This could be through cash or the franchisee’s hiring and overseeing of their own management team. Hotels and large restaurant franchises are common examples.

Conversion franchises: This type of franchise is basically business-format franchising with an acquisition component. It involves the franchisor acquiring other businesses in their sector and converting them into franchise locations. This way, the business can continue to exist while accessing the franchisor’s systems. The result is rapid scaling for the franchisee and more profits (and less competition) for the franchisor.

Not all franchises are created equal. Different types of businesses are well suited to various types of franchise models. Carefully consider the franchise type before you decide to move forward.

A franchisor is a business or corporation that licenses the right to operate in its name and sell its products or services using the franchise’s branding, assets, and intellectual property. The advantage to becoming a franchisor is that franchising allows a business to expand its locations and size more quickly and more successfully by relying on franchisees to use their local market knowledge to grow the business. 

Other definition of a Franchisor?

A franchisor is a company owner that owns the rights and trademarks of the company and its business model, systems, and products.

The franchisor sells the rights to operate under its brand, sell its products, and operate following its business model to other business owners without losing control of the company. While the franchisee handles the day-to-day of their specific store, a franchisor must look at the bigger picture and plan for the future of the brand based on all of its franchisees.

Franchisor Roles and Responsibilities Creating a Brand and Scalable Business Model Before anyone can enter a franchise, there needs to be an established brand and a scalable, sustainable business model. The franchisor will need to put forth the financial and creative labour to make this happen before the business can begin to expand through franchising.

Managing the Brand and Its Products or Services

The franchisor will need to handle the overall brand image — from the tone to the business systems, plus the products and services. For example, a franchisor would be responsible for creating a limited-time product that will be sold at all of the company’s locations.

Providing Support

A franchisor will need to offer ongoing support to its franchisees. If a franchisee needs help with inventory, new-hire training, or advertising, the franchisor will need to provide the necessary guidance — even years into the franchise agreement. In exchange, the franchisor receives ongoing royalties from all of its franchisees.

Creating Marketing Materials

Although franchisees are responsible for how they advertise and market themselves locally, the franchisor needs to offer the materials and overall guidance for how franchisees should do this. Franchisors are also responsible for national marketing. For example, the franchisor behind a major fast-food restaurant chain will be responsible for TV commercials and offer signage for franchisees to hang in their windows or general guidelines for what to put on their outdoor sign displays.

Vetting and Training Franchisees

Franchising a business comes with financial risks if the location fails. Someone might come to you with all the money to get started but lack the right attitude to work with employees and customers. Or maybe, they don’t have experience with day-to-day business operations. The franchisor needs to thoroughly interview franchisees to make sure they are cut out to run a business, then they can provide successful candidates with the training and support needed to help the business grow and profit.

Planning for the Future

Franchisors need to know where they want the business to go moving forward. The franchisor is responsible for the overall success of the brand, so they must know how to continuously improve operations, expand the business model, and innovate upgrades or new products and services to fulfil consumer needs.

A franchise is a legal and commercial relationship between the owner of a trademark, service mark, trade name or advertising symbol and an individual or group seeking the right to use that Identification in a business. The franchise agreement governs the method for conducting business between the two parties. Although forms of franchising have been in use over several decades, enormous growth has occurred more recently. Industries that rely on franchised businesses to distribute their products and services touch every aspect of life, from automobile sales to education, real estate to fast foods, clothing to travel and almost everything that we can possibly think of.

In its simplest form, a franchiser owns the right to a name or trademark and sells that right to a franchisee. This is known as product/trade name franchising. In the more complex form, known as business format franchising, a broader and ongoing relationship exists between the two parties. Business format franchises often provide a full range of services, including.

• Site selection.
• Training.
• Product supply.
• Marketing plans.
• Financing.

Generally, a franchisee sells goods or services that are supplied by the franchiser or that meet the franchiser's quality standards.

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As you can see, there are many differences between a franchisee and a franchisor. The franchisee is a small business owner that handles the day-to-day management of a specific location.

The franchisor oversees the big picture for an overall brand and all its franchisees. Each party owes the other something, whether that be royalties from the franchisee or ongoing support and rights to existing branding from the franchisor.

Examples of Franchisees and Franchisors

Many of the biggest examples of franchisees and franchisors are found in the food industry. But everything from gyms to hotels to movie theatres to retail shops can all operate under franchises. Some of the most well-known franchisors in the food business include McDonald’s and KFC. Hotels are another popular franchise opportunity. Major hotels like Hampton by Hilton, Hyatt Hotels & Resorts, and Days Inn operate under franchises.

For individuals who dream of owning a business, becoming a franchisee is a good place to start. For people who already own a business, taking on the role of a franchisor can help expand and grow your operations into new locations. But when it comes to franchisee vs. franchisor, what are the terms of ownership? Who’s responsible for marketing materials? Can a franchisee make their own rules for their store, or do they have to abide by the franchisor’s existing regulations? Let’s dive into the differences between a franchisee and a franchisor — from what each term means to the roles and responsibilities for both parties.

There are many benefits and risks for both the franchisee and franchisor. They both depend on one another for success, but there are instances where either can fail while the other succeeds.

Ultimately, a successful franchisee and franchisor will need to be communicative, innovative, and in tune with current trends to continue to grow. Plus, companies that focus on high-quality products and top-notch customer service are more likely to succeed.

Franchisor-franchisee relationships don't start vaguely and arbitrarily. Establishing a franchise involves more than a handshake, trust, good intentions, and an unspoken understanding of what both parties expect out of their relationship. It requires a record of clear, legally documented protections and obligations to set things in motion.

That record is referred to as a franchise agreement. Let's take a closer look at what that term entails and what you can expect to see on one.

Business format franchise: This type of franchise includes not only a product, service and trademark, but also the complete method to conduct the business itself, such as the marketing plan and operations manuals.

Disclosure statement:  Also known as the FDD, or Franchise Disclosure Document, the disclosure document provides information about the franchisor and franchise system.  

FDD:  The Franchise Disclosure Document, FDD, is the format for the disclosure document which provides information about the franchisor and franchise system to the franchisee.   

Franchise:  A license that describes the relationship between the franchisor and franchisee including use of trademarks, fees, support and control.   

Franchise agreement: The legal, written contract between the franchisor and franchisee which tells each party what each is supposed to do.   

Franchisee: The person or company that gets the right from the franchisor to do business under the franchisor’s trademark or trade name.   

Franchising: A method of business expansion characterized by a trademark license, payment of fees, and significant assistance and/or control.   

Franchisor: The person or company that grants the franchisee the right to do business under their trademark or trade name.

Product distribution franchisee: A franchise where the franchisee simply sells the franchisor’s products without using the franchisor’s method of conducting business.

Royalty: The regular payment made by the franchisee to the franchisor, usually based on a percentage of the franchisee’s gross sales.   

Trademark: The marks, brand name and logo that identify a franchisor which is licensed to the franchisee.

Upholding Brand Reputation
First and foremost, the actions of a franchisee can and will reflect on the entire company. For example, if a customer is treated poorly or a franchisee has an outburst, this could lead customers to boycott other company locations — as the franchisee’s actions are directly tied to the brand as a whole.

Hiring and Training Employees
The franchisee will need to put out job postings, review applications, interview prospective candidates, and train new employees — but the franchisor may assist with this by providing training materials or hiring guidelines.

Following Rules and Guidelines
The benefit to becoming a franchisee is that you save money on fully developing a business from scratch — but in return, you must be willing to abide by the franchisor’s vision. If that means wearing a specific uniform, performing inventory via a specific protocol, or advertising through provided signage, you need to follow those expectations.

Finding and Leasing a Building
The franchisee will need to find the location for their business and pay the leasing fees. A franchisor may also help with finding a good location for the franchisee. The franchisor will also likely provide necessary fixtures, furniture, and store signage for the new location.

Manage Day-to-Day Activities and Performance
The franchisor will certainly take on some risk if a new business fails, but the burden of turning it into a successful company ultimately comes down to the franchisee. The franchisee will manage the daily activities that go into keeping a franchise location operational — including opening the store, overseeing sales, and locking up at the end of the day. The success or failure of a specific location ultimately relies on and heavily impacts the franchisee.

Paying Ongoing Fees to Franchisor
The cost of operating, using an existing business’ brand, business model, and operational systems occurs in the form of royalties. Franchisees will pay royalties to the franchisor monthly. In fact, even if a franchisor goes into bankruptcy, franchisees are typically expected to continue operating and paying royalties.

In exchange for a franchise, the franchisee usually pays the franchisor an initial start-up fee and annual royalty fees or licensing fees depending on the language in the franchise agreement in order to use the franchisor's proprietary business knowledge, intellectual property, processes, and branding, allowing the franchisee to sell a product or service with the franchisor's business name.  

Franchise royalty fees are recurring fees paid by the franchisee to the franchisor in order to continue using the business name, branding, and more. Royalty fees might be paid regularly or by revenue, depending on the guidelines set in the franchise agreement. 

Why does one have to pay franchise fee when they take up a new business? This is the most commonly asked question, any entrepreneur has, while they seek to purchase a franchise. Franchise Fee is the cost, that the franchisee has to bear, in anticipation of the returns that they expect, in lieu of the support, the training, and the commitment a franchiser gives to the franchisee, more fully described in the franchise agreement, franchise manuals and other documentation, for getting the rights to operate and earn from the franchisers business and their systems.

In simple words, it's the non-refundable component of the premium, that a business owner charges, justifying the return on investment for their business. There are several methods of calculation of the franchise fee and a more common approach is through a franchise fee calculator that evaluates several components of the franchisers business and arrives at a practical amount that changes as the franchise system evolves.

“Find something you love to do and you’ll never have to work a day in your life.” -Harvey Mackay 

Regardless of whether you choose to remain an independent business owner or become a franchisee, research is the single most important activity in making your decision. Without adequate information, you may end up making the most costly decision of your life.

• What business would you enjoy?  
• Is there a market?
• Can you afford it?   
• Can you make enough money to make it worthwhile?

What business would you enjoy?

Sometimes people start a business because they think they’ll make a lot of money, only to find out that they do not enjoy the business. The adage “know thyself” certainly applies here. You should start a business in an industry that you will enjoy for the next 10 to 15 years.

Ask Yourself:  

• What do you like to do? (interests and hobbies)   
• What do you know how to do? (experience)   
• What do you do well? (special skills and talents)  
• Which industry (or industries) involves your interests and use your skills and talents? (For ideas, refer to the franchise industry listings in EduMany's Franchise Opportunities Guide) 
• What products or services could you sell in this industry?   
• Would you rather sell a product or service?  
• What products or services would you like to sell the most?   

Is there a market?

All successful businesses must:   Satisfy a need or Solve a problem or Respond to a trend

Before starting any business, determine if there is a market for your product or service by conducting market research. Questions to ask include:  

• How many potential customers are in your area?  
• Will your product or service sell?
• What need does it satisfy?  
• What problem does it solve?
• What trend or fad does it address?   
• What should the appropriate pricing be?   
• Who are your competitors?  
• Who are your competitors?  
• How many competitors do you have?   
• What do they offer?   
• How will your product or service be unique?     
• What marketing niche can you capture?  

Determine if you can afford to start a business.

Make profit potential your most important consideration. 

In order to start a business, you have to have money!

The single most common reason new businesses fail is that they did not have enough money to begin with! Don’t forget the old business adage: “It takes twice as long and costs twice as much!”

Costs to consider:  

Estimate your start-up costs using the below items as a reference:   

• location design and construction  
• professional fees  
• equipment and fixtures  
• furniture  
• opening inventory and supplies  
• insurance  
• pre-opening labour  
• opening advertising and promotion  

Estimate how much working capital you will need (the money you will need until the business becomes profitable – include your living expenses, if necessary), paying particular attention to:

• salaries  
• insurance  
• utilities  
• advertising  
• rent  
• interest on a loan, if applicable 

Brainstorm where you might be able come up with money:  

• yourself  
• family  
• friends  
• advertsavings and investments ising  
• a partner
• selling personal assets
• loans  

Determine if you can make enough money to make the venture worthwhile.

Estimate the profit potential for the business using the formula: Profit = income - expenses Think about the amount of time and energy it will take to make the business successful. Make a decision as to whether you think you can make enough money to make the entire venture worth your time and energy. 

There are typically three paths to going into business for yourself: starting a new business, buying a new franchise, or purchasing an existing franchise. Each option carries pros and cons, which we have outlined below.

To summarize, starting your own business can be a more affordable, flexible option, but often requires significantly more effort and carries a higher risk of failure. Purchasing a franchise comes with significant brand and business support from the franchisor, although your costs are generally higher and you cede some operational independence to the franchisor.

Regardless of the option you choose, it will take hard work to find true success. We hope that the information below helps along your path.

Advantages

• Typically lower start-up cost
• Independence and creative freedom
• No inherited problems from an existing business

Disadvantages

• Requires more time and energy
• Higher risk of failure
• Takes longer to become profitable
• Financing may be more difficult to obtain

Advantages

• Reduced risk of failure over an independent business
• Proven methods and products
• Start-up assistance
• On-going training and support
• Local, regional, and national advertising
• Collective purchasing power
• Research and development
• Association and synergy with other franchisees
• Easier to obtain financing

Disadvantages

• Higher costs (fees, royalties, supplies)
• Smaller profit margins
• Lack of independence and freedom
• Difficult to achieve redress if franchisor fails to meet obligations
• A franchisor's problem may become your problem

Advantages

• The business is already up and running
• Risk and uncertainty are reduced
• The basic infrastructure is in place:
  • Established location
  • Existing customers and reputation
  • Employees
  • Vendors
  • Policies and procedures
  • Cash flow
  • No start-up period, leading to quicker profitability
  • Easier to obtain financing

Disadvantages

• Tangible limitations:
• Design problems
• Location problems
• Merchandise problems
• Intangible limitations:
• Customer or employee ill-will
• Pricing problems
• Inadequate procedures
• Lease problems
• Potentially higher costs to buy
• Legal liability in inheriting lawsuits

Next Steps

The EduMany is open to assisting you get franchisor members, representing 100 unique business categories, listed on our site.  If you are considering whether or not to go into business for yourself, but not by yourself, we are confident that you will find a number of franchise systems that might be a good fit for you. To begin your search, visit our franchise opportunities section.

Looking for franchises for sale? Use our franchise directorytool to find the best franchises for your goals. Start by selecting an industry, then narrow your criteria and click the search button.

Franchise Search Tips

To search for low-cost franchises, use the investment required drop down. If you're looking for distributor, franchise retailer, sales agency opportunities, make sure to select relevant section from drop down Further industry filters will appear after you click search to help you pick the best franchise opportunity for you

What is your Passion?

• AUTOMOTIVE
• BUSINESS SERVICES
• CHILDREN'S PRODUCTS & SERVICES
• CLEANING & MAINTENANCE
• EDUCATION, TRAINING & STAFFING
• FINANCIAL SERVICES
• FOOD & RESTAURANTS
• HEALTH, PERSONAL CARE & FITNESS
• HOME-BASED AND/OR MOBILE
• HOME PRODUCTS & SERVICES
• INTERNET & TECHNOLOGY
• RETAIL
• SENIOR CARE & HEALTHCARE
• SPORTS & RECREATION
• TRAVEL, CRUISE & HOTEL

LInvestment requirements for purchasing a franchise differ tremendously based on the industry and the type of business the franchise operates. Total start-up costs can range from INR 20,000 or less to more than $1 million, depending on the franchise selected and whether it is necessary to own or lease real estate to operate the business. To learn more about the full costs of purchasing a specific franchise, use the EduMany's franchise opportunity search tool to find the franchise that will be the best financial fit for you. 

10 Key Questions to Ask.... 

Visit almost any town in India today and on many streets you will find franchised businesses. One of the reasons that many franchises have been so successful is that, in franchising, a business synergy is created. Franchisees brought together under one trademark can achieve things that as individual business people they could not do. Group advertising, buying power and the sharing of ideas are some examples of what can happen.  

While there are many examples of successful franchises, buying a franchise is no guarantee of success. Before buying a franchise, 10 important questions need to be carefully and thoughtfully answered:   

1. Are you willing and able to take on the responsibilities of managing your own business? 

Some very careful self-analysis is important before buying a franchise. Indeed, your personal house should be in good order. One of the myths that has been perpetuated is that franchise ownership is easy. This is just simply not true! While the franchise system will give the start-up training and offer ongoing support, you, the franchisee, must be prepared to manage the business. While some franchises may lend themselves to absentee ownership, most are best run by hands-on management. You must be willing to work harder than you have perhaps ever worked before. Forty-hour weeks are also a myth, particularly in the start-up phase of the business. It is more like 60-to-70-hour weeks. You must also be willing to mop floors, empty trash, fire as well as hire employees and deal with upset customers.  

2. Will you enjoy the franchise? 

Sometimes people buy a franchise they think will make them a lot of money, only to find later they do not enjoy the business. The adage, “know thyself,” certainly applies here. You should buy a franchise that centres in an area that you will enjoy for the next 10-15 years.  

Determine your interests and types of businesses you might really enjoy. Review the table of contents of this Guide. There you’ll find a listing of the types of franchises available today. Place a check next to the ones that might be of interest to you. You can then turn to those categories and locate the franchise companies that meet your criteria.   

3. Are you willing to completely follow the franchise system?

The very key to franchising success is the consistency of product and service customers find from one franchise to another. When you display the sign and logo of a franchise, you are indicating to customers that you follow a particular system. People who are extremely entrepreneurial in the sense that they do not like to conform to a predetermined formula should be very careful about buying a franchise.  

3. Are you willing to completely follow the franchise system?

The very key to franchising success is the consistency of product and service customers find from one franchise to another. When you display the sign and logo of a franchise, you are indicating to customers that you follow a particular system. People who are extremely entrepreneurial in the sense that they do not like to conform to a predetermined formula should be very careful about buying a franchise.  

4. Do you have a history of success in dealing and interacting with people?

Many franchised businesses are based on people relations. Your ability to interact well with your franchisor, other franchisees, your employees and your customers cannot be emphasized enough. A negative, critical franchise owner can be a detriment to the entire franchise system. You must have a track record of good relationships with employers, supervisors and fellow employees.  

5. Can you afford the franchise?

One of the major causes of business failure is under capitalization. While the franchisor will be able to give you a good idea of the start-up costs, sometimes these will vary due to leasehold improvements needs and other valuables. You will need enough money to not only open your franchise, but to run it until such a time as it is profitable. For some franchises, that may take a year. Remember, it is better to start out with more money than you think you will need rather than less.  

6. Have you carefully studied the legal documents?

 Franchisors are required to prepare a document called the franchise disclosure document. This document will give you pertinent information about the franchise. It will also contain the franchise agreement that you will sign. This agreement will govern your relationship with the franchisor for the term of the contract. The disclosure document is a vital document. It should be studied very carefully and discussed with your lawyer.  

7. Does the franchise you are considering have a track record of success?

 You should get to know the principal directors of the company—their business background and how profitable their franchise has been. The disclosure document will contain this information. Have an accountant review the financial analysis of the franchise. Is it a solid company? Also, examine how long the franchise has been in business. A new start-up franchise may offer you the opportunity to get in on the ground floor. But it might also mean that the franchisor has not had sufficient experience to fully develop the system.  

8. Are the franchisees generally happy and successful?

 The disclosure document will contain a listing of all of the franchise owners. It would be worth your time to contact a number of them to discuss their experiences with the franchise. Has the franchisor followed through on commitments? Did the franchisees receive adequate training? Would they buy the franchise again? Is the business profitable? What advice would they give you?   

9. Do you like the franchisor’s staff—those people with whom you will be working?

One of the most important elements of a franchise is the ongoing support and contact you will have with the franchisor. For this reason, you should feel comfortable with the people you will interact with for a number of years.  

10. Do you have a support system? 

Managing a franchise is a full time job. It requires great sacrifices of personal and family time. For this reason, your friends and family should understand that you will have tremendous demands on your time. 

Advantages:

“Owning a franchise allows you to go into business for yourself, but not by yourself.” A franchise provides franchisees (an individual owner/operator) with a certain level of independence where they can operate their business. A franchise provides an established product or service which may already enjoy widespread brand-name recognition. This gives the franchisee the benefits of a pre-sold customer base which would ordinarily takes years to establish. A franchise increases your chances of business success because you are associating with proven products and methods. Franchises may offer consumers the attraction of a certain level of quality and consistency because it is mandated by the franchise agreement.

Franchises offer important pre-opening support:

site selection, design, construction, financing, training, and a grand-opening program

Franchises offer ongoing support:

training, national and regional advertising, operating procedures, operational assistance, ongoing supervision and management support, increased spending power, and access to bulk purchasing.

Disadvantages:

The franchisee is not completely independent. Franchisees are required to operate their businesses according to the procedures and restrictions set forth by the franchisor in the franchise agreement. These restrictions usually include the products or services which can be offered, pricing and geographic territory. For some people, this is the most serious disadvantage to becoming a franchisee. In addition to the initial franchise fee, franchisees must pay ongoing royalties and advertising fees. Franchisees must be careful to balance restrictions and support provided by the franchisor with their own ability to manage their business. A damaged, system-wide image can result if other franchisees are performing poorly or the franchisor runs into an unforeseen problem. The term (duration) of a franchise agreement is usually limited and the franchisee may have little or no say about the terms of a termination. 

The best franchises are those with proven franchise business models and strong support systems that provide high-quality products or services that stand out from competitors. You can learn about the details of a franchise by researching its process to become a franchisee, reading its franchise agreement, speaking to current franchisees, and examining a franchise’s performance data in order to make an informed franchise business decision. 

There are a number of aspects to the franchising method that appeal to prospective business owners. For example, easy access to an established product and a proven method of operating a business reduces the many risks of opening a business. The franchisee purchases not only a trademark, but also the experience and expertise of the franchiser's organization. However, a franchise does not ensure easy success. If you are not prepared for the total commitment of time, energy and financial resources that any business requires, you should stop and reconsider your decision to enter the franchise business.

A franchise typically enables you, the investor or "franchisee," to operate a business. By paying a franchise fee, which may cost several lakh Rupees, you are given a format or system developed by the company ("franchisor"), the right to use the franchisor's name for a limited time, and assistance. For example, the franchisor may help you find a location for your outlet; provide initial training and an operating manual; and advise you on management, marketing, or personnel. Some franchisors offer ongoing support such as monthly newsletters, a toll free telephone number for technical assistance, and periodic workshops or seminars.

Like any other investment, purchasing a franchise is a risk. When selecting a franchise, carefully consider a number of factors, such as the demand for the products or services, likely competition, the franchisor's background, and the level of support you will receive.

Demand: Is there a demand for the franchisor's products or services in your community? Is the demand seasonal? For example, a woollen wear franchise is likely to do more business in winters. Is there likely to be a continuing demand for the products or services in the future? Is the demand likely to be temporary, such as selling a fad food item? Does the product or service generate repeat business?

Competition: What is the level of competition, nationally and in your community? How many franchised and company-owned outlets does the franchisor have in your area? How many competing companies sell the same or similar products or services? Are these competing companies well established, with wide name recognition in your community? Do they offer the same goods and services at the same or lower price?

Your Ability to Operate the Business: Sometimes, franchise systems fail. Will you be able to operate your outlet even if the franchisor goes out of business? Will you need the franchisor's ongoing training, advertising, or other assistance to succeed? Will you have access to the same or other suppliers? Could you conduct the business alone if you must lay off personnel to cut costs?

Name Recognition:  A primary reason for purchasing a franchise is the right to associate with the company's name. The more widely recognized the name, the more likely it will draw customers who know its products or services. Therefore, before purchasing a franchise, consider: The company's name and how widely recognized it is. -- If it has a registered trademark. How long the franchisor has been in operation. If the company has a reputation for quality products or services. If consumers have filed complaints against the franchise with the consumer protection agency or any other local courts.

Training and Support Services:  Another reason for purchasing a franchise is to obtain support from the franchisor. What training and ongoing support does the franchisor provide? How does their training compare with the training for typical workers in the industry? Could you compete with others who have more formal training? What backgrounds do the current franchise owners have? Do they have prior technical backgrounds or special training that helps them succeed? Do you have a similar background?

Franchisor's Experience: Many franchisors operate well-established companies with years of experience both in selling goods or services and in managing a franchise system. Some franchisors started by operating their own business. There is no guarantee, however, that a successful entrepreneur can successfully manage a franchise system. Carefully consider how long the franchisor has managed a franchise system. Do you feel comfortable with the franchisor's expertise? If franchisors have little experience in managing a chain of franchises, their promises of guidance, training, and other support may be unreliable.

Growth: A growing franchise system increases the franchisor's name recognition and may enable you to attract customers. Growth alone does not ensure successful franchisees; a company that grows too quickly may not be able to support its franchisees with all the promised support services. Make sure the franchisor has sufficient financial assets and staff to support the franchisees.

Entrepreneurs in search of a franchise lawyer can start by checking with our supplier’s directory, under the franchise lawyers section or by looking up the legal consultants section, where, you will find the relevant contacts.

Entrepreneurs in search of a franchise lawyer can start by checking with our supplier’s directory, under the franchise lawyers section or by looking up the legal consultants section, where, you will find the relevant contacts.

• How much do you have to invest?  
• How much can you risk losing?  
• How much do you need to live on?  
• What is the total investment required for getting into the franchise? 
• What portion of the investment can be financed?  
• Can you find anyone willing to invest in you and your future?  
• How much can you earn as a franchisee?  
• How long will it take to breakeven?  
• What return can you get on your investment?  
• Can you get a better return from another investment?  
• Are the risks equal?  
• Is your research thorough? (Have you researched the industry, the franchisor, the disclosure documents, and talked with current and former franchisees?) 
• Have you gotten the assistance of professional advisors who are familiar with franchising?   
• Have you made a slow and detailed evaluation of the opportunity to determine if you will meet your personal and financial goals? 

The sooner the better. It is usually a good idea to start figuring out how you will be funding your business venture as early in the process as you can. Some funding options take time and you don’t want to miss out on an opportunity. One of the most important aspects of opening a franchise is funding. Funding options come in all shapes and sizes. Based on your timeline, risk tolerance, credit history, and more, the best option for you might be a single solution, or a combination of several options.

Franchise Funding

One of the most important aspects of opening a franchise is funding. But just as franchises come in all shapes and sizes, so do the options for funding them. Based on your timeline, risk tolerance, credit history, and more, the best option for you might be a single solution, or a combination of several options. 

Intro to Funding

SBA Loans (Small Business Administration): There are a variety of loan programs available through the SBA including specific ones for veterans, disaster recovery, etc. The primary one for small business owners is the 7(a) program, which is more generally focused on helping small businesses start and grow. 

Conventional Loans: Conventional loans can be provided by bank and non-bank lenders, but are not guaranteed by the SBA or other government entity. Any small business or franchise can apply; however, they are not typically available for new businesses. Approval depends largely on the overall credit risk of the business. 

Securities Backed Line of Credit: A line of credit backed by securities held in an investment portfolio. This type of loan is similar in concept to a home equity loan, but rather than the loan being backed by the equity in your home, it is backed by the securities held in your investment portfolio. 

Home Equity Loans: Although becoming less common, some entrepreneurs still rely on their biggest asset for cash – the equity in their homes – to finance a franchise or business purchase.  

Equipment Leasing: Finance up to 100% of the value of equipment you need to start or run a business including: computers, office furniture, company vehicles, machines or special service equipment. This option may include a buyout for pre agreed sum at the end of the lease. 

Funding Strategies

FIRST-TIME FRANCHISE OWNER: Taking into account the franchise fee, royalty fees, working capital and other possible costs needed to start a franchise business, most potential franchisees find they don’t have the cash resources to purchase a franchise upfront. If you find yourself in this position as well, don’t be surprised if you run into a few financing challenges. Many lenders are typically more hesitant to approve loans if you don’t have experience or a solid track record as a business owner. Having said that, it’s not impossible, and luck favours those who are prepared.  

MULTI-UNIT OPERATORS: The most important thing to know if you want to become a multi-unit operator is that how your first unit is funded affects your ability to fund future units. So, if you are arranging financing for the first unit without considering how it is going to affect your ability to get additional financing, you may find yourself without any options to fund additional units. Since many larger franchises require a 3-unit commitment, the most common scenario is a “three-pack” over a 2-3 year window. 

Looking for Funding

Use our funding vertical and discover what funding options(s) are right for you. TRY IT NOW!

The sooner the better. It is usually a good idea to start figuring out how you will be funding your business venture as early in the process as you can. Some funding options take time and you don’t want to miss out on an opportunity. One of the most important aspects of opening a franchise is funding. Funding options come in all shapes and sizes. Based on your timeline, risk tolerance, credit history, and more, the best option for you might be a single solution, or a combination of several options.

Franchise Funding

One of the most important aspects of opening a franchise is funding. But just as franchises come in all shapes and sizes, so do the options for funding them. Based on your timeline, risk tolerance, credit history, and more, the best option for you might be a single solution, or a combination of several options. 

Intro to Funding

SBA Loans (Small Business Administration): There are a variety of loan programs available through the SBA including specific ones for veterans, disaster recovery, etc. The primary one for small business owners is the 7(a) program, which is more generally focused on helping small businesses start and grow. 

Conventional Loans: Conventional loans can be provided by bank and non-bank lenders, but are not guaranteed by the SBA or other government entity. Any small business or franchise can apply; however, they are not typically available for new businesses. Approval depends largely on the overall credit risk of the business. 

Securities Backed Line of Credit: A line of credit backed by securities held in an investment portfolio. This type of loan is similar in concept to a home equity loan, but rather than the loan being backed by the equity in your home, it is backed by the securities held in your investment portfolio. 

Home Equity Loans: Although becoming less common, some entrepreneurs still rely on their biggest asset for cash – the equity in their homes – to finance a franchise or business purchase.  

Equipment Leasing: Finance up to 100% of the value of equipment you need to start or run a business including: computers, office furniture, company vehicles, machines or special service equipment. This option may include a buyout for pre agreed sum at the end of the lease. 

Funding Strategies

FIRST-TIME FRANCHISE OWNER: Taking into account the franchise fee, royalty fees, working capital and other possible costs needed to start a franchise business, most potential franchisees find they don’t have the cash resources to purchase a franchise upfront. If you find yourself in this position as well, don’t be surprised if you run into a few financing challenges. Many lenders are typically more hesitant to approve loans if you don’t have experience or a solid track record as a business owner. Having said that, it’s not impossible, and luck favours those who are prepared.  

MULTI-UNIT OPERATORS: The most important thing to know if you want to become a multi-unit operator is that how your first unit is funded affects your ability to fund future units. So, if you are arranging financing for the first unit without considering how it is going to affect your ability to get additional financing, you may find yourself without any options to fund additional units. Since many larger franchises require a 3-unit commitment, the most common scenario is a “three-pack” over a 2-3 year window. 

Looking for Funding

Use our funding vertical and discover what funding options(s) are right for you. TRY IT NOW!

• Like starting any business, buying a franchise involves risk. Although most franchisees are satisfied and successful, some do suffer financial losses. That’s why you must be particularly wary of any company that “guarantees” profit or certain success. If you hear a claim about a company that sounds too good to be true, it probably is. Investigation of all earnings claims made by a franchisor is especially important. Regardless of earnings claims, you must recognize that your success can come only through hard work. Success or failure ultimately depends on you.
• To help mitigate the risks of buying a franchise, studies show that successful franchisees: 
• conduct their own marketing research 
• use their own financial and legal advisors 
• develop thorough marketing and business plans 
• have prior work experience in the industry
• Be sure to ask these questions before purchasing a franchise. 

There are three main questions you should ask yourself: 

• Do I have what it takes to start my own business/be an entrepreneur?  
• Do I have what it takes to be a franchisee?  
• Do I have all the answers I need about the franchise I am considering buying?

Do I have what it takes to start my own business?

So you want to be an entrepreneur?  You're not alone! An entrepreneur is defined as:

• "One who pursues opportunity beyond the resources currently controlled."  
• "A person who sees an opportunity and creates an organization to pursue it."
• "A dreamer who attempt to turn an idea into a profitable reality." 
• "Anyone who assumes the risk and responsibility for starting and managing a business."  
• "Anyone who takes the risk of starting a business for the purpose of making a profit."  

Entrepreneurs have a different way of looking at life: 

• freedom and independence 
• control over a major aspect of your life 
• an outlet for creativity 
• excitement 
• satisfaction and sense of achievement 
• self-esteem 
• status and recognition 
• flexibility 
• job security-you cannot be fired or laid off 
• unlimited income potential 
• growth of initial monetary investment 

• risk 
• responsibility and pressure 
• fear of failure 
• obstacles and frustration 
• loneliness 
• more work 
• longer hours 
• less time or energy to spend with friends and family 
• less financial security 
• fewer job benefits 
• risk of losing investment
• income fluctuation  
• you are responsible for your own portion of taxes and FICA 

• Do you have the personal drive to be a successful entrepreneur?  
• Are you willing to work whatever hours it takes to make your business a success?  
• Are you willing to give up the perks of being an employee to invest and run your own business? 
• Are you self-reliant?  
• Can you work without support?  
• Are you healthy?  
• Do you have the physical ability to meet the needs of operating on your own?
• Can you handle stress? 
• Do you have the mental ability to meet the everyday needs of operating your own business?  
• Can you handle the crisis situations and deadlines?  
• Do you like people?  
• Do you listen well?   
• Do you have patience when working and interacting with others?  
• Do you communicate well?  
• Can you be a leader and a trainer for your staff as well as a front person for your business?   
• Can you maintain a positive relationship with the people who work for you? 
• Can you meet the needs of your customers?  
• Do you have the ability to sell-yourself and your products and services? 
• Can you afford to start your own business?  
• Do you have the support of your family and friends?

What are your business goals for this financial year? Have you ever wanted to start a small business? We can help. The first step to starting a small business is to identify the different opportunities that exist within the skills and resources you possess. You will also have to analyse the risk appetite that you have and how you will be able to support yourself and your family during the initial period of the business stabilizing.

• What is your back up plan?
• What is your return on investment expectations?
• How will you be able to raise capital, in-case you are short of funds?
• Which banks and financial institutions will offer you loans at a competitive price?
• What is the reputation of the businesses that you are exploring?

We have made that task very easy for you. We have franchise coaches available across the length and breadth of our country. You could choose to visit one of our franchise consultants based in your city and take complete guidance on how to start small business. Take Free Advice.

Once you have determined that you have the abilities, skills and desire to start your own business, you have to further determine if you have the requisite traits to become a franchisee.   

• Can you follow someone else's rules, even when you think you have a better way?  
• Are you prepared to accept coaching and advice on how to run your business from a franchisor's field and headquarter's staff?  
• If the Franchisor turns down your great idea for changing the system, can you live with that?  
• Can you trust that a franchisor is working for the benefit of the entire system-even when their decisions do not necessarily go your way?  
• Are you willing to share your financial information and prepare required reports each month? 
• Are you willing, able and eager to learn new skills?
• Can you set aside old habits and beliefs to follow a franchise system?

Do you know the franchisor? Have you spent enough time finding out about the franchisor from:  

• Other franchisees?  
• EduMany.com 
• The franchisee's owners association 
• The franchise advisory council 

While a lot of women seek independence in what they want to do, there is a growing section of employees who want to make that extra income from businesses that can work from home. High cost of maintaining an office or operating from exclusive premises has led to the advent of opportunities that can operate from home.

EduMany work from home opportunities helps you find businesses that do not need exclusive premises from where you need to operate. There are businesses that begin from investments as low as Rs. 50000 and several others that just need your time and resources as low as just a computer, an internet connection or a phone. Work From Home Opportunities

• Have you thoroughly read the FDD and the franchise agreement? 
• Have you had all your questions satisfactorily answered?  
• Have the promises which the franchisor made during your discussions been included in the agreement?  
• Have you had a qualified, experienced franchise attorney review the documents?  
• Have you had a qualified, experienced accountant, familiar with franchising review the documents?  

• Have you talked with and visited other franchisees?  
• Have you worked at a franchise location to get a better feeling if this is the right decision? 
• Have you contacted the franchise owners association and talked with the president?  
• Have you talked with the director of the franchise advisory council?  

• Are other franchisees constantly bringing lawsuits against the franchisor?  
• Is there anything about the franchisor's litigation history that causes you concern?
• Have you discussed these concerns with the franchisor's management and the leadership of the franchise owners association or franchisee advisory council? 

• Are you making money with the franchise investment?    
• How long did it take you to breakeven?  
• How long before you started to make money?  
• Was the investment estimate the franchisor gave you accurate? If not, how much more money did you need?   
• Was the estimated working capital accurate? How much did you need to have and how long before you could take money out of the business to live on?  
• Are there mistakes you made in starting up the franchise that cost you money? How can I avoid the same problem? 

• If the franchisor has been in business awhile, is their business being supported by continuing royalties or is it coming mostly from initial franchise fees?  
• Is the franchisor profitable?  
• Is the franchisor on firm financial ground?  

• Does the franchisor have adequate staff, resources and trained personnel to meet its commitment to you?    
• Do you feel the franchisor has the appropriate temperament to operate a franchise system?
• Does the franchisor staff attend seminars on franchising and management? DO they know about the latest changes in the industry? Are they active in trade associations for their specific industry and are they active in the EduMany?  
• Has the franchise been growing? Are new locations being added on a regular basis? How many locations closed in the last year? Why did they close?   
• Are the sales within individual stores increasing?    
• Does the franchisor have an active research and development department that introduces new products and services?    
• Do the field staff act as consultants and advisors or do they act as police personnel (inspecting franchises and writing up violations, but not offering help and guidance?)   

No franchise is one-size-fits-all. Entrepreneurs who want to open a franchise must take into account their budgetary constraints and the franchiser’s support system during the evaluation phase. Here are a few criteria that you should consider.

Franchise Fees and Set-Up Costs
Every franchisor requires an upfront fee. This can range from hundreds to hundreds of thousands of dollars. Preferably, the franchise fee would be paid out-of-pocket (though some franchisers offer financing options). Either way, we recommend having at least $10,000 to invest up-front. Profitability When you're evaluating a business investment, it's important to know if the opportunity is worth the money. Determining the profitability of a franchise isn't an exact science, but there are a few factors to consider, including the unit growth, new franchisee success rate, and the franchiser's financial statements.

Support Systems for Franchisees
When selecting a franchiser, take a look at the support systems they’ve put in place to ensure their new location is a success. Not all franchisers, especially small ones, will have extensive resources like large international brands, but make sure they offer basic training.

Time Commitment
Operating a franchise will be a decades-long commitment, ideally longer — you can’t operate a store and leave after a year. The franchise term for K12 education, for example, is 30 years. Be sure that you’re prepared to stick around for a while without pursuing other time-consuming commitments (such as an additional career). If you feel that you’ll want to leave in less than ten years, be sure to choose a brand whose franchises are easier to sell.

Available Territories
Most, if not all, franchisers are looking to grow in a particular geographical area. It wouldn’t be profitable, for example, to open a new location just miles from another, or in an area where there’s no demand. Be sure to check whether your target franchiser wants to open a location in your area. If not, decide whether you’re willing to relocate.

Brand Recognition or Growth
How recognizable is the brand that you’ll be franchising? If it’s a smaller brand, has it seen significant growth in the past year? These two characteristics will determine whether it will be profitable to operate a franchise for a prospective brand. Sometimes, going for a big, highly recognizable brand isn’t ideal, because up-front costs are significant. A smaller franchiser could be an easier entry point — so long as the company has been growing in revenue.

Now that you know how to evaluate an opportunity, let’s take a look at our list of the best franchise opportunities to select from. Throughout the pandemic, these franchisers have either seen growth or very little stagnation, making them the best franchises to own.

Owning a franchise has countless benefits. You can profit from the franchiser’s recognizable brand while essentially running your own operation. The most profitable franchises rarely fail, removing the risks typically associated with opening a brand-new business.

Let’s dive into the benefits you’ll enjoy after investing in a franchise opportunity.

Franchises are already well-known in their market.

One of the biggest challenges of launching a start up is creating enough brand awareness to attract and convert customers.

Because most franchises have been operating for a few years at minimum, they’ve generated enough awareness for your first customer to walk in within days of opening your doors. The brand can be recognized immediately.

If it’s not, then potential customers need only look up the name of your business, and all the locations will show up. This demonstrates to potential buyers that the brand is proven and reputable. Think about it: Would you go to an unknown shop or a shop that has multiple locations? Likely the latter.

You see greater profits as a franchise owner.

Because franchisers have already established multiple businesses and have generated brand awareness, you will have a greater potential for profits than if you were to operate an independent business.

That does come at a premium cost, such as franchise fees and ongoing royalties paid out to the franchisers. However, you will see a high return-on-investment once new customers begin walking in almost immediately after opening the location.

You get the training you need to operate the franchise.

Don’t have industry-specific experience? Good news: You don’t need any. You simply need to be available for the company’s training schedule to learn how to operate your brand-new franchise location.

Franchisers don’t expect you to have specific experience in the field. For instance, if you’re considering opening a Kumon location, Kumon won’t require you to have a Master of Arts in teaching. All you need is to be proficient in math and reading and be willing to work with children. You will receive in-person support and assistance.

Most franchisers have field representatives that visit independently-owned locations to ensure operations are progressing smoothly. Even if the franchiser doesn’t offer an in-person visit, you will have a strong support group from your fellow franchisees. You can go to networking events (or create your own) to find new ways to market your location, hire more help, and attract more customers.

Franchises offer lower risks.

All of these benefits conspire to make franchises lower-risk business ventures. Sure, there’s always a potential for your franchise location to fail, but this risk is much, much smaller compared to the risk you face when opening your own business.

If things go awry, you can sell the franchise location to another person. After all, the brand name is still valuable. Just because you can’t afford to operate that location doesn’t mean another person can’t.

Franchises can have high upfront costs.

Initial investment costs in a franchise can be pricey, especially if you are buying a well-known profitable business like McDonalds. For smaller franchises, you’ll still have to shell out thousands up front.

While buying into a successful franchise comes with many benefits — including a built-in customer base, the initial lump sum needed to get started can be prohibitive for some.

Franchises may have more restrictive regulations or guidelines.

Unlike starting your own business from scratch, franchises come with a list of guidelines franchisees must follow. These terms and guidelines can be found in your franchise agreement.

The franchisor may dictate:

• Pricing
• Products
• Equipment
• Business hours
• Decor and signage
• Marketing
• Location

These guidelines are meant to create uniformity so that each franchise is the same at every location. The franchisor may oversee your business' finances.

In addition to dictating how your business runs, franchises also lack autonomy when it comes to finances. Your franchisor will most likely control all aspects of the franchise's financial dealings. Be prepared to routinely submit financial statements such as your balance sheet and income statements.

Franchises often require additional ongoing fees and expenses.

In addition to start up costs, franchise owners should budget funds for reinvestment in the business and other fees stipulated by the franchisor. These additional costs can come in the form of training fees, royalty fees or other services like advertising.

While owning a franchise offers important benefits, it does come at a high cost. Read on to learn how you can afford a franchise.

Opening up a new location of a franchise is costly. You’ll need to not only cover the franchise fee, but have thousands of dollars in liquid assets.

First up, make sure that you have a good enough credit score to qualify for loans. Having a savings account is also essential. Keep in mind that some franchisers could require you to pay for the up-front fee without a loan. For that reason, you should consider franchises that accommodate your unique financial situation.

Here are a few of your funding options:

Small business loans are an excellent option for covering your franchise fee and up-front investments. Depending on your financials and your lender, you can qualify for hundreds of thousands of dollars, which will more than cover you during the setup phase.

Small business grants are another avenue to consider, with a minor caveat: Most grant issuing authorities look for independent start up owners, not for franchise owners. For that reason, you’ll want to parse carefully through the options.

Micro lending is another great franchise funding option. If you don’t have enough capital to qualify for bigger loans, you can use a micro-loan. These loans typically amount to less than INR 500,000 and are best for you if you’re planning to open up a location for a low-cost franchise. Ideally, you would also have other sources of funding, such as investors and friends and family, to cover the up-front franchise costs.

Just as if you were launching your own start up, you can and should look for investors for your new franchise location. You should also distribute equity according to your investors’ initial investment. Before seeking investors, review the franchise agreement to ensure you’re not violating the terms of your franchisor-franchisee partnership. Some franchisers may not allow you to seek individual investors because of the terms. It also may be overly complicated to account for franchise royalties, investor equity, employee payouts, marketing fees, and operational costs when calculating your net profits.

Friends and Family
One of your best options for funding? Your very own friends and family. As mentioned, opening a franchise location requires a hefty investment. Even if your friends and family chip in at INR 100,000 a piece, you’ll be much closer to affording your franchise than you were yesterday. In addition, your friends and family can be an excellent source of new business once you open your doors.

You can become an entrepreneur by starting your own business — or by buying a franchise from a major brand. Take advantage of an established brand name while enjoying the perks of running your own operation. Franchises can be highly worthwhile to own, especially when you create a strong business plan that helps your profits grow.

A franchise agreement is a legally binding contract that establishes a relationship between a franchisor and a franchisee. These documents allow a franchisee to establish a franchise location — along with providing the rights to use franchise-specific resources like branding, business models, and supply sources.

Like any other contract, a franchise agreement is designed to establish definitive terms for the relationship between the parties involved. These kinds of documents feature protections and obligations that suit both franchisors and franchisees.

Franchise agreements dictate the parameters within which franchisees are allowed to operate and detail any financial obligations they have to their franchisors. They also typically offer more protections for franchisors than franchisees.

In exchange for their compliance to an agreement's terms, franchisees are afforded legal assurance that they'll be equipped with the resources and support to operate a franchise location. Let's take a more thorough look at what you can expect to see on a franchise agreement.

Basis for Agreement
This section recognizes both the franchisor's and franchisee's intentions and what each party will get out of the agreement. It explicitly states that the franchisee desires to establish a franchise location and the franchisor desires to grant them the right to operate it.

Grant of Franchise
The "Grant of Franchise" section essentially expands on the basis for agreement. It's where the franchisor grants the franchisee the right to use the franchise's marks and licensed methods in connection with the establishment and operation of the franchise in question. It also dictates that the franchisee can't sell any products or services that aren't previously approved by the franchisor.

Franchise Fee
A franchise fee is the upfront payment a franchisee pays to essentially "buy into" a franchise. It lets them use the franchise's system and name for their own financial gain — and provides them with assistance from the franchisor for a limited time.

Franchised Location and Designated Area
This section dictates where the franchisee's franchise location will be. It also typically specifies that a franchisee can't transfer their franchise rights to another location without written approval from the franchisor.

Training
The "Training" section of a franchise agreement specifies that a franchisee must designate a representative who will assume management responsibilities for the franchise location. Then, that general manager will be required to attend and complete a training program offered by the franchisor. In some cases, the franchisor might waive this portion of the agreement if they feel the manager already has sufficient experience. 

Development Assistance
Here, the franchisor agrees to provide the franchisee with a list of approved and designated suppliers — as well as an advertising plan and advertising copy in advance of the franchisee's grand opening. In many cases, this section includes a stipulation requiring the franchisor to provide on-site services from a representative who can assist with providing employees with further training. 

Operations Manual
This section revolves around the franchisor agreeing to provide the franchisee with an operations manual — a collection of manuals, technical materials, and other written materials covering ordering of supplies, manufacturing, processing, stocking, in-store operating procedures, and marketing techniques.

Royalties
The "Royalties" section specifies how much a franchisee needs to pay the franchisor in continuing monthly royalties — typically calculated as a percentage of the franchise location's gross monthly sales.

Advertising
This section dictates that the franchisee agrees to obtain the franchisor's explicit, written approval for all advertising, marketing, or promotional materials that might be used for the benefit of the franchise location. 

Quality Control
The "Quality Control" section of the franchise agreement is where the franchisee agrees to maintain and operate their franchise in compliance with the standards and specifications contained in the operations manual — understanding that those stipulations can be changed by the franchisor at any point.

Term
This section sets the time frame the agreement covers.

Default and Termination
The "Default and Termination" section affords the franchisor the right to terminate the terms of the agreement and all the rights it grants the franchisee — effective upon notice — upon the occurrence of any of the following events:

• Abandonment — The franchisee abandons the franchise location for a period specified in the agreement.
• Insolvency — The franchisee becomes insolvent or bankrupt.
• Criminal Conviction — The franchisee is convicted of a felony, a crime of particular moral depravity, or any crime the franchisor believes will harm the franchise's reputation.
• Failure to Make Payments — The franchisee fails to make any routine payments specified in the franchise agreement.
• Misuse of Marks — The franchisee fails to follow the franchisor's directions regarding the directions and guidelines regarding the use of the franchisor's marks.
• Unauthorized Disclosure — The franchisee discloses the franchisor's trade secrets to any unauthorized individual.
• Repeated Non-Compliance — The franchisee receives more than two notices of default on any terms of the agreement from the franchisor.
• Other — The franchisor finds any other legitimate reason they feel is sufficient to warrant the termination of the agreement.

Restrictive Covenants
This section disallows franchisees from operating any competing businesses both during the period covered by the agreement and after the agreement has lapsed or been terminated. Insurance

The "Insurance" section dictates that a franchisee agrees to procure and maintain evidence of certain insurance policies, typically including:

Comprehensive general liability insurance for the franchise location Automobile insurance for any employees authorized to operate motor vehicles on behalf of the franchise

Unemployment and worker's compensation insurance for employees Franchisors often require all of these policies to name them as additional names insured. Governing Law

This section specifies that the terms of the franchise agreement will be interpreted under the laws of the state the franchise location is established in — and any disputes between parties will be resolved in accordance with those laws.

Modification
The "Modification" section dictates that the agreement can only be modified with the expressed, written consent of both parties involved. It also states that the franchisor is allowed to modify the standards, operations techniques, marketing policies specified in the operations manual unilaterally and without objection so long as those changes are non-arbitrary and made to improve, promote, or protect the marks and quality of the franchise's licensed methods.

Entire Agreement
The "Entire Agreement" element of the agreement specifies that the contract represents a complete and final agreement between both parties. This is intended to protect both sides. It means that the contract takes precedence over any prior agreements the franchisor and franchisee might have made concerning the agreement. It prevents the franchisee from demanding more than what has been specified in the rest of the document.

Effective Date
This section dictates that the agreement will not be effective until the franchisor accepts, dates, and signs it.

Attorneys' Fees
Should there be a dispute between the franchisor and franchisee, this section requires the non-prevailing party to pay the prevailing party's legal fees incurred in any sort of legal action or arbitration.

No Waiver
The "No Waiver" section stipulates that neither the franchisor nor the franchisee can waive their right to bring suit if the other party breaches the agreement.

No Right to Set Off
This section dictates that the franchisee doesn't have the right to set off any royalties they owe the franchisor. It also stipulates that the franchisee can't withhold any money it owes the franchisor based on their perception of non-performance by the franchisor.

Invalidity
The "Invalidity" clause of a franchise agreement states that if a court finds the agreement invalid — generally meaning the agreement or the purpose of the agreement is deemed illegal in some capacity — it must be modified. Once it's been modified, the changes will be considered a part of the agreement as if they were originally included in the document.

Notices
This section states that all notices given in accordance with the agreement need to be given in writing, by certified mail, return receipt requested, or shipped overnight to provide the necessary documents at the address specified in the agreement or mutually understood by both parties.

Signatures
This one is pretty self-explanatory. It's where both parties explicitly agree to the terms of the agreement.

No matter what side of a franchise agreement you're on, you need to have a firm understanding of these documents and what they entail. They're among the most important factors in dictating the nature of a franchisor-franchisee relationship, so make sure you know what you're getting into when you sign one.

Among the points EduMany recommends for investigation are:

• The type of experience required in the franchised business.
• The hours and personal commitment necessary to run the business.
• The track record of the franchisor, and the business experience of its officers and directors.
• How other franchisees in the same system are doing.
• How much it will cost to get into the franchise.
• How much you're going to pay for the continuing right to operate the business.
• If there are any products or services you must buy from the franchisor and how and by whom they are supplied.
• The terms and conditions under which the franchise relationship can be terminated or renewed, and how many franchisees have left the system during the past few years.
• The financial condition of the franchisor and its system.

EduMany have many helpful resources to assist you in your business endeavour. EduMany also strongly recommends that you engage an attorney to examine the contract, as well as a professional accountant.

Financial statements represent the financial track record of your franchise and tell you how well positioned your franchisor will be for the future. They are provided for you in the Franchise Disclosure Document (FDD) and contain important information about the franchisor’s financial status and strength.  

The two most important franchisor financial statements franchisees need to review are the Balance Sheet and Income Statement.  

The Balance Sheet

• A balance sheet is a snapshot summary of how much a company is worth on any given day. It reports the financial condition (solvency) of the franchisor.
• Balance sheet categories include: 
  • Assets - what a company owns: current, fixed, and intangible assets.  
  • Liabilities - what a company owes: current and long-term debt.  
  • Stockholders' equity - the company's net worth; it is the money the company has taken in from the sale of stock plus any accumulated profits:
• Stockholder’s Equity = Assets – Liabilities = Net Worth 
• Things you want to see on a franchisor's balance sheet: 
  • Increasing assets
  • Increasing stockholders' equity
  • More cash than debt
  • Amount of current debt < (less than) 1/2 of the total assets
  • Amount of current debt < 1/3 of the stockholders' equity

The Income Statement

An income statement reports a company’s profit or loss. It shows a company’s income, expense and net income – also known as the “bottom line” or earnings. 

• Other names for an income statement include:
  • Profit and loss statements
  • Statement of income
  • Statement of operation
  • Statement of earnings
  • Results of operations
  • Statement of consolidated income 

Income statement categories include: 

• Revenues 
• Costs and expenses: cost of sales, selling, general administrative, interest expenses 
• Income before taxes
• Provision before taxes
• Net income (earnings)
• Net income (earnings) per share  
• Things you want to see on a franchisor's statement: 
• Increasing profit
• More revenue derived from royalties and system income than from selling franchises 
• Increasing revenue trends, usually > 15%
• Increasing net income trends, usually > 15%

A profitable franchisor!

What you should know about these financial statements: 

• The financial statements should be audited financial statements.  
• The statements should contain three years of financial data (unless the franchisor has less than 3 years of operating history).
• You should take these to an accountant experienced in franchising for evaluation.

Before purchasing a franchise, make sure to ask the questions below to evaluate the potential franchise opportunity.

Evaluate the Strength of the Franchisor

Investigate the Franchisor’s History:  

• How long has the franchisor been in business? 
• How many current franchisees are there? 
• What is the failure rate of the franchisees? 
• Are there any pending or past lawsuits and what have they been for? 
• Does the franchisor have a reputation for quality products or services?  
• What is the franchisor's financial health? (get its Dun & Bradstreet rating)
  • credit rating 
  • profitability 
  • reputation  
• Review the franchisor's financial predictions:
• What are the financial performance forecasts?  
• On what data are they based?  
• Are the projections based on franchisor- or franchisee-run centres?   
• How long have the centres used for projections been in business?    
• What is the background of the franchisor's principals/management? 
  • What is their business experience?  
  • Have they personally had any bankruptcies? 
  • Have they personally had any recent litigation? 

Obtain Professional Advice Concerning the Franchisor’s FDD and Franchise Agreement: 

We recommend seeking the advice of an attorney and accountant who specialize in franchises. Pay special attention to these experts' opinions on:   

• Costs 
• Agreement life and renewal provisions and conditions 
• Termination clauses 
• Franchise territory (if any) 
• Procedures and restrictions 
• Training and assistance 
• Financial performance potential - gross sales, net profit.   

Consider Expansion Plans:  

• How fast does the franchise plan to grow?   
• Where does the franchisor plan to grow? 
• Does the franchise have a business plan for your area or location?
• What is their analysis of the competition in your area? 
• How many units are being planned for your area? 
• How much is going to be spent in regional advertising in your area?  

Visit with Existing Franchisees and Ask Them About:

• The level of training they receive
• The quality of products or service 
• The level and promptness of support provided by the franchisor
• Operational concerns and quality of the operations manuals 
• Financial performance history/claims 
• Any problems or difficulties with the franchisor 

Visit the Franchisor:

• Visit the franchisor's headquarters:
• meet the support team 
• Review the operations manuals and see if you can sit in on a training class.  

Work in an Existing Franchise 

This is one of the best ways to learn the franchise system, manuals, training program, support, earning potential, etc.  

Talk to Franchisees Who Have Exited

Finding out why franchisees who have left the system made their choice can inform you of the pros and cons of your potential franchise.   

Before purchasing a franchise, we recommend carefully considering the items in the eight categories below that will be critical to your success: 

COSTS

How much money will this franchise cost before it becomes profitable?

Can I afford to buy this franchise? 

Can I make enough money to make the investment worth my time and energy?  

DEMAND

Is there enough demand in your area for the franchisor's products or services?  

Is the demand year-long or seasonal?   

Will the demand grow in the future?   

Does the product or service generate repeat business?  

BRAND NAME

How well known is the franchise name? 

Does it have a reputation for quality? 

Have any consumers filed complaints with the local Better Business Bureau?  

EXPERIENCE

Has the franchisor been in business long enough to have established the type of business strength you are seeking?  

YOUR ABILITIES

Do you have the technical skills or experience to manage the franchise?  

Do you have the business skills to manage the franchise?  

COMPETITION

How much competition do you have, including other franchisees?  

Are the competing companies/franchises well established? 

Do they offer the same products and services at the same or lower prices?  

Is there a specialty or niche you can capture?  

TRAINING AND SUPPORT

What kind and how much training and support does the franchisor provide? 

Do existing franchisees find this level of training and support adequate?  

EXPANSION PLANS

Is the franchisor planning to grow at a rate that is sustainable?   

Overall Questions to ask the Franchisor:

• Where will your franchise be located? 
• What is the success rate of existing franchises?  
• What method is used to protect franchisees from poorly performing franchises?
• Is there a franchise owners association? 
• Is there a franchise advisory council?  
• Who owns the trademarks, service marks, etc., and are they federally registered?
• Are there any disputes pending or threatened against the trademark.
• Has the franchisor complied with the FTC and state disclosure laws?  
• Are any senior management or key personnel leaving the system?  
• Does this company compete with the franchisees in the marketplace?  
• Will the franchisor finance any of the costs?  
• Is the franchisor willing to negotiate the terms of the franchise.  

If you’ve decided that opening a franchise is right for you, follow these steps to get started: Be sure about your reasoning. 

Owning a franchise (or any business, for that matter) can be a large undertaking emotionally, physically and financially. Before you dive into buying a franchise, be confident in your reasoning for wanting to own one. If you think owning a franchise may be easier than owning any other type of business, keep in mind that business ownership in general comes with its challenges. Research which franchises you may want to own. 

Just because a franchise is popular doesn’t necessarily mean it is the right one for you. When you’re choosing a franchise, do significant research into how the parent company works with franchisees, as well as the local market in which your franchise will operate. Expect to dedicate several weeks to this process, and look for the following criteria:

A solid track record of excellent sales: It’s advisable to choose a franchise that has proof of being profitable.

A growing market: For success, the franchise you choose should be in a market that is growing.

Social responsibility:  People want to do business with companies that are socially responsible. Find out what the franchises you are considering are doing to be socially responsible.

Local competition:  A little competition can be good, but too much competition nearby can break your business. The competition does not need to be in the form of the same franchise; too many local businesses in the same industry located in one area also can make it hard to drive sales.

Repeat business: What is the likelihood that the franchise could bring you repeat business? For example, someone who owns a health supplements franchise can at least hope that every month, the same customers would come back to refill their vitamins.

Opportunities to upsell products and services:  McDonald’s is an excellent example of a company that excels at upselling products. Having a burger? How about some fries with that burger? Would you like to supersize that? These are examples of upselling customers to drive more revenue.

Franchise fees:  How much are the fees, and what do you get for them? You should hope to hear that you will receive excellent marketing, hiring and training support.

What it’s like to work in that franchise:   See if you can get a current franchise owner to let you shadow them. Shadowing an owner of a current franchise will help you get a better sense of your passion for this business and if it’s something you can and want to do.

Begin the application process.

Once you’ve decided on a franchise, it’s time to begin the application process. This is an area where an attorney could be helpful. Just as you’ve screened franchises, you’ll be getting screened as a part of the application process. Franchisors will look at the following considerations:

• Your finances, to ensure you’ll have enough funds to keep the doors open
• Your background, including your education, work history, and reasoning for starting the business
• Where you want to open the franchise
• Why you are interested in their franchise and what you already know about it
• Set up your “discovery day” meeting.

Prior to the COVID-19 pandemic, the corporate office of a franchise would hold a standard face-to-face meeting with the prospective franchisee. During this meeting, commonly known as the “discovery day,” you get to know each other better and you can ask all the questions you’d like before making a commitment to buying a franchise.

Since the pandemic, however, discovery days are more often held virtually. As a part of the virtual meeting, you should hope to get a virtual tour of the franchise. When your discovery day is held depends on the franchise; some choose to schedule the meetings during the very beginning of the recruitment process, while others prefer to hold them toward the end.

As pandemic restrictions wane, don’t be afraid to request an in-person discovery day meeting, as it can shed more light on whether the partnership is right for you.

Apply for financing.

Most franchisees will need financing to launch their franchise. For many, this will come in the form of a bank loan. If you’re in need of funding for your franchise business, consider the best business loans we recommend. Review and return your franchise paperwork very carefully.

These contracts tend to be long and can include confusing verbiage, so it may be beneficial to consult an attorney to help with this process.

Buy or rent a location.

At this point in the process, you will have already chosen the town or city for your franchise. Now, it’s time to physically go out and buy or rent a commercial space.

Get training and support.

You are joining an established brand; it has a logo, messaging, guidelines and products. This is the step you’ll take to really entrench yourself in the business. Get training on the following aspects of the franchise:

• Branding
• Products and services, including how to sell them and where to buy them
• Product placement and point-of-purchase displays
• Payment technology, such as credit card processing
• Sales tactics for this specific business model 
• What are the initial investment costs and franchise fees?

As you may expect, owning a franchise usually involves spending money before you can make money. Franchise ownership involves franchise fees – what you pay to operate a franchise location. Consider the franchise fee your rite of passage; you pay to get a piece of the pie. 

The cost of owning a franchise varies. Some franchises require franchisees to pay an initial fee, which can range from INR 25,000 to more than INR 100,00,000. Then there are the ongoing marketing and royalty fees, which are often determined by how much money your franchise location makes each month.

How much money can I make by owning a franchise? The amount of money you can make depends on a few factors: Loan payments Required business reinvestment (including franchise fees) Taxes These three expenses must be paid before franchise owners can pay themselves. As of December 2021, franchise owners earn, on average, about INR 10,00,000 per year, according to Glassdoor.

To get more information on how much money franchise owners make, you may want to ask existing franchise owners the following questions:

• How much money have you made every year since the franchise’s inception?
• How much of that money did you pocket?
• What unanticipated expenses did you have?
• Based on what you’ve seen, what do you think is a realistic amount of money I can make by owning this franchise?

You’ll also want to consider the location. Having the same franchise, or a close competitor, within a few miles will affect your profits.

Despite the required upfront fees, you don’t have to have all of the money before getting started with a franchise business; there are several financing options to consider.

Liquid capital
Liquid capital should make up roughly 25% to 30% of any loan you request. It might be cash on hand; assets you leverage, like home equity; or cash infusions from family or silent investors.

Traditional and/or SBA-backed loans
“Hundreds of high-quality franchises are on the SBA’s registry, which usually helps to expedite that loan process,” Martin told Business News Daily.

Leveraging of assets to self-fund
Lines of credit, the leveraging of real estate assets, and business start up programs that allow you to roll over portions of qualified retirement funds tax- and penalty-free are possible solutions to cover the money you’ll need for start up and operating capital.

Partnerships with other funders
As a last resort, you could try to obtain partnerships with other funders, but Martin said most franchises will require any shareholders to sign the franchise agreement as a legally binding commitment.

Financing options include liquid capital, traditional or SBA-backed loans, your own funding or money from a potential partner. Each option has pros and cons.

• franchise fee 
• furniture, fixtures, and equipment 
• leasehold improvements 
• lease deposits 
• other deposits 
• franchise training 
• travel expense 
• supplies 
• advertising and brochures 
• grand-opening advertising 
• inventory 
• pre-opening staff costs 
• working capital until breakeven 
• working capital - living expenses 
• other 

• royalties 
• advertising 
• Must the franchisee purchase products or services from the franchisor?
• Does the franchisor earn income on purchases? 
• How much does the franchisor earn? 
• How are the products distributed?  
• How long does it take for the orders to be filled?  
• What other initial or continuing services does the franchisor provide? What do these costs?

• What type of consumer research has the company conducted?   
• What were the results?  
• Has the franchisor conducted any market studies on the territory to ensure that it can support a franchise?  
• What are the demographics required to support a franchise?  
• What are the traffic counts required to support a franchise?  

• What are the location, duration and additional costs of initial training?  
• Who must attend the training? 
• What is the cost of additional staff attending training? 
• What is the training curriculum?   
• Who conducts the training and what are their backgrounds?  
• Who pays for transportation, room and living expenses?  
• Does the franchisor provide training materials for training new staff in addition to the operations manuals? 
• Does the franchisor provide hands-on assistance during the pre-opening, grand opening and initial period?  Of what type, duration and cost?

• Are there any new products or services under consideration for addition to the franchise?
• When are they going to be introduced  
• What is the estimated additional cost for adding the new products or services? 
• Are there any restrictions on the distribution or sale of the product?  
• Is there a guarantee or warranty program? 
• How is it administered and what is the cost?  
• Is there a minimum that must be purchased?

• What are the roles and responsibilities of the field staff? 
• How many locations does each franchise consultant work?  
• What is the background of the franchise consultant I will be working with?  Can I meet that person before purchasing the franchise?  
• How often does the field staff visit a franchisee's location?  
• What is the additional cost of field services if the franchisee requires it? 
• Exactly what kind of assistance is given?   
• What kind of supervision or quality control is there? 
• What, if any, is the charge for assistance?
• What kind of business management systems are provided to boost sales and profits?  

• What type of consumer advertising does the company recommend?  
• What types of cooperative advertising programs are being used?  
• What percentage of sales is recommended or required for advertising or marketing?  
• How do the franchisees obtain their sales leads or customers? 
• What is the franchisor's national/regional advertising program and budget? 
• What portion of the national/regional advertising contribution is used for administrative/corporate/agency expenses and fees?  
• What are the primary advertising/marketing vehicles? 
• What is the grand opening advertising program and cost?  

Questions about the franchisor:

• How much support do you get?   
• Are you satisfied with the franchisor?
• Is the franchisor fair and easy to work with? 
• Does the franchisor listen to your concerns and accept input from the franchisees?  
• Have you had any disputes and, if so, were you able to settle them?   
• Do you know of any trouble the franchisor has had with other franchises, competitors, or the government?
• Has the franchisor kept its promises? 
• We recommend that potential franchisees ask these five questions to understand if a franchise opportunity will be right for them.

Questions about costs: 

• Is your franchise profitable?  
• What are your gross revenues?  
• What have your pre-tax profits been for the past three years?   
• What is your salary?   
• How is your cash flow?    
• Were the franchisor's start-up costs and working capital requirements accurate?   
• Were the franchisor's profit projections and earnings claim accurate?   
• How long did it take you to break-even?  
• Have you made the profit you expected to make?  

• Was the training by the franchisor adequate? 
• Was the training by the franchisor effective?  

• Is the product or service you sell of good quality?  
• Is delivery of goods from the franchisor adequate? 
• Are you getting supplies cheaper from the franchisor than you could on your own?  
• What does the franchisor supply? 

• How effective are the operational procedures?  
• Have the operations manuals helped you? 
• What do you think of the manuals?  
• Are the manuals updated on a regular basis?  
• What did you do before you bought the franchise?   
• Describe your day.   
• How many hours a day do you work?     
• How many hours a week do you work?    
• How much freedom do you have to make decisions?     
• Are you happy with your investment?  
• Are you disappointed in any aspect of the business?  
• Is there anything about the business you do not like?  
• What do you like most about the business?  
• What kind of problems do you encounter? 
• What do you like least about the business?  
• Would you do it again?  
• Would you recommend I buy a franchise?  

Franchise agreements vary between different franchises, but these seven areas should be addressed in every franchise agreement. 

Use of Trademarks

One of the main benefits you receive when purchasing a franchise is the use of well-known trademarks. This section lists the trademarks, service marks or logos the franchisee is entitled to use.

• Has the trademark been in operation for a significant amount of time and is it well known?
• Are there any restrictions on its use by the franchisor or franchisee?

Location of the Franchise

This section describes the exclusive area or territory granted to the franchisee.

• Do you have exclusive rights in a certain territory?

Term of the Franchise

In this section, the duration of the agreement is specified.

• How long does the agreement last?
• Can the franchisor purchase the franchise before the agreement expires?
• Do you have the right to renew the agreement?

Franchisee’s Fees and Other Payments 

In this section, all the mandatory fees are described:

• Initial fee and what the franchisee receives for that fee
• Royalty payment, what it is based on and when it is due

Obligations and Duties of the Franchisor 

This section describes the franchisee’s responsibilities:

• Requirements for training
• Requirements for participation in the business
• Requirements for keeping and submitting adequate records

Restriction on Goods and Services Offered

This section describes any restrictions placed on the goods or services offered, including:

• required quality standards
• approved suppliers
• approved advertising
• Hours of operation
• pricing

Renewal, Termination and Transfer of Franchise Agreement

This section includes:

• The rights and obligations of a franchisee upon termination
• Descriptions about the transfer of the franchise agreement
• Descriptions about the renewal of the franchise agreement

Before you buy a franchise, consider hiring a franchise attorney, who could serve as an excellent resource during the due diligence process. In fact, having a franchise attorney assist in reviewing and explaining key provisions in the franchise agreement is imperative to ensure you are fully educated about the obligations and responsibilities you are undertaking as a franchisee.

The greatest benefits to franchisees is education about franchising and the system they are considering in particular, getting insight into franchise industry norms and customs and counsel in negotiating the franchise agreement for modifications.

From a franchisor’s perspective, a franchise attorney is necessary for drafting and maintaining the franchise disclosure document, which is required by law before you can sell franchises in certain geographies.

A franchise attorney assists the franchisor with navigating the legal compliance maze at both the federal and state levels.

Because franchising is a heavily regulated industry, it is essential to have counsel who is familiar with the franchise industry. This ensures you don’t fall into a compliance trap, such as failing to have a franchise disclosure agreement, encountering sales compliance issues, and conducting annual renewals/maintenance of the system disclosures.

He noted these additional benefits of having professional help when reviewing a franchise agreement:

• Education on obligations and expectations within the franchise system
• Knowledge of industry norms
• Additional insight into how a potential franchise system is structured and help in identifying potential future concerns
• Counsel for negotiating modifications
• Starting your franchise the right way

Franchise ownership can lead to a fulfilling career, but before you commit to opening a franchise, be sure to do your due diligence. Conduct ample research, figure out how much money you’ll make and consider all your financing options. It’s often best to hire an attorney as well. That way, your journey toward becoming a franchise owner will go as smoothly as possible.

A good relationship between the franchisor and franchisee is critical for the success of both parties. Since franchising establishes a business relationship for years, the foundation must be carefully built by having a clear understanding of the franchise program. Unfortunately, understanding the legal language of franchising can be daunting. The advice of an experienced franchise attorney should be sought to help a prospective franchisee understand the legal issues and to protect them from making costly mistakes. Franchising is governed by federal and state laws that require franchisors to provide prospective franchisees with information that describes the franchisor-franchisee relationship. The two main franchising legal documents are:

The Franchise Disclosure Document (also known as the FDD)

The purpose of the FDD is to provide prospective franchisees with information about the franchisor, the franchise system and the agreements they will need to sign so that they can make an informed decision. In addition to the disclosure part of the document, the FDD includes the actual franchise agreement as well as other agreements the franchisee will be required to sign, along with the franchisor’s financial statements. The FDD is designed to give you some of the information you need in order to make an informed decision about investing in a particular franchise. By law, a franchisor cannot sell a franchise until the franchisor has presented the prospective franchisee with a Disclosure Document. In fact, 14 states require franchisors to register their FDDs with the state or to notify them that they will offer franchises before they begin to conduct any franchising activity in the state. The FDD includes information about: 

• The franchisor         
• The company’s key staff             
• Management’s experience in franchise management           
• Franchisor’s bankruptcy and litigation history      
• Initial and ongoing fees involved in opening and running the franchise 
• Required investment and purchases 
• Territory rights                     
• Responsibilities of the franchisor and franchisee                                  
• Other franchisees in the system with contact information                                  

Receipt of the FDD is governed by the “14-day rule.” This is a cooling-off period in which franchisors must give prospective franchisees 14 days to think about their decision before they sign the franchise agreement.

The franchise agreement is more specific than the FDD about the terms of the relationship between the franchisor and franchisee. The franchise agreement includes information about:

• The franchise system, such as use of trademarks and products        
• Territory       
• Rights and obligations of the parties: standards, procedures         
• Term (duration) of the franchise
• Payments made by the franchisee to the franchisor                   
• Termination and/or the right to transfer the franchise
• Training, assistance, and advertising                    

The franchise agreement is the legal, written document that governs the relationship and specifies the terms of the franchise purchase. A prospective franchisee should closely review the franchise agreement and consult with a professional advisor, like an attorney or an accountant, before making a final decision. 

The purpose of the Franchise Disclosure Document (FDD) is to provide prospective franchisees with information about the franchisor, the franchise system and the agreements they will need to sign so that they can make an informed decision.

The Items Contained in a Franchise Disclosure Document

Item 1:  The franchisor and any parents, predecessors and affiliates.  This section provides a description of the company and its history. 

Item 2:  Business experience.  This section provides biographical and professional information about the franchisors and its officers, directors, and executives.

Item 3:  Litigation.  This section provides relevant current and past criminal and civil litigation for the franchisor and its management. 

Item 4:  Bankruptcy. This section provides information about the franchisor and any management who have gone through a bankruptcy.   

Item 5:  Initial fees. This section provides information about the initial fees and the range and factors that determine the amount of the fees. 

Item 6:  Other fees. This item provides a description of all other recurring fees or payments that must be made.  

Item 7:  Initial investment. This item is presented in table format and includes all the expenditures required by the franchisee to make to establish the franchise. 

Item 8:  Restriction on sources of products and services. This section includes the restrictions that franchisor has established regarding the source of products or services. 

Item 9:  Franchisee's obligations. This item provides a reference table that indicates where in the franchise agreement franchisees can find the obligations they have agreed to. 

Item 10:  Financing. This item describes the terms and conditions of any financing arrangements offered by the franchisor.   

Item 11:  Franchisor's Assistance, Advertising. Computer Systems and Training. This section describes the services that the franchisor will provide to the franchisee.

Item 12:  Territory. This section provides the description of any exclusive territory and whether territories will be modified.  

Item 13:  Trademarks. This section provides information about the franchisor's trademarks, service and trade names. 

Item 14:  Patents, copyrights and proprietary information. This section gives information about how the patents and copyrights can be used by the franchisee.  

Item 15:  Obligation to participate in the actual operation of the franchise business.  This section describes the obligation of the franchisee to participate in the actual operation of the business.   

Item 16:  Restrictions on what the franchisee may sell. This section deals with any restrictions on the goods and services that the franchisee may offer its customers.  

Item 17:  Renewal, termination, transfer, and dispute resolution. This section tells you when and whether your franchise can be renewed or terminated and what your rights and restrictions are when you have disagreements with your franchisor.  

Item 18: Public Figures. If the franchisor uses public figures (celebrities or public persons), the amount the person is paid is revealed in this section.

Item 19: Financial Performance Representations. Here the franchisor is allowed, but not required, to provide information on unit financial performance.

Item 20: Outlets and Franchisee Information. This section provides locations and contact information of existing franchises.

Item 21: Financial statements. Audited financial statements for the past three years are included in this section.   

Item 22: Contracts. This item provides of all the agreements that the franchisee will be required to sign.   

Item 23: Receipts. Prospective franchisees are required to sign a receipt that they received the FDD.

Normally few sections of the Franchise Disclosure Document are considered to be critical pieces of information to help you evaluate a potential franchise for purchase:

Item 1: Costs

Some of these costs are averages or estimates and may vary in your area. Talk to other franchisees who have been in the system for a year or more to see:  How much money they needed in the beginning until they became profitable.   How much they were able to draw from the business to support themselves.  

Item 2: Franchisor's obligations. 

Be sure you understand the services you will get before you open: 

• Site selection 
• Training 
• Development assistance
• Be sure you know what services you will receive for your grand opening. 
• Marketing
• Advertising
• Field support 

Be sure you know that services you will receive after you begin operating your business. 

• Training
• Advertising
• Operations

Pay particular attention to those services the franchisor is obligated to provide and the services they may provide. 

Item 3: Renewal, termination, transfer and dispute resolution. 

Take your time to understand what rights you will have and what rights you are giving up. Pay particular attention to any non-compete provisions and your obligations when the franchise relationship ends.  

Item 4: Financial performance representations.  

Only 30 to 40 percent of all franchisors provide prospective franchisees with information about financial performance. The next best thing to do is to talk to existing franchisees about sales and earnings potential.  

Item 5: Outlets and franchisee information.  

Examine how many units the franchisor has taken back and resold. If this number is high, this could indicate churning (when the franchisor takes back failed locations and markets them over and over.) Pay attention to the contact information of the franchisees who have left the system, these are people you definitely want to talk to. 

Item 6: Financial statements.

Financial statements are the track record of the franchisor. You should be given copies of the franchisor's last three years financial statements. Take them to an accountant who specializes in franchising to evaluate. Remember that the financial condition of the franchisor not only affects its ability to run a financially successful operation in the future, but it also determines whether it may go under and you will be left "holding the bag." The two key financial statements to focus on are the balance sheet and the income statement. Make sure they are audited. 

Item 7: Contracts.

Make sure that all the agreements listed are attached to the FDD-and read every one of them.  

• We recommend seeking the advice of an attorney and accountant who specialize in franchises. Pay special attention to these experts' opinions on:  
• Costs 
• Agreement life and renewal provisions and conditions 
• Termination clauses 
• Franchise territory (if any) 
• Procedures and restrictions 
• Training and assistance 
• Financial performance potential - gross sales, net profit.   

The EduMany maintains a franchise supplier directory that includes a legal category to help franchisees and franchisors identify attorneys with experience in franchising.

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Once you register, you get a centralized dashboard from which you could do your entire activities absolutely free of cost. In addition, once you update your profile, you will automatically get business opportunities matching your exact requirements. You will always have a track of the status of every business you have explored and have all communication with every brand in one central location.

Names, addresses and telephone numbers of other franchisees and a proper discussion with them about the entire business, the customer response and the company support.

Take proper advice on the franchise agreement. A fully audited financial statement of the seller if they are an ltd company or a private ltd company. If any other format, request for the information.

The cost required starting and maintaining the business. Please make special note of working capital or ongoing costs which you may have to incur after starting the business.

The responsibilities you and the seller will share once you buy a franchise.

Litigation involving the company or its officers, if any.

Again, use your professional support to examine all of these issues. Some of the contract terms may be negotiable. Find out before you sign; otherwise, it will be too late.

Perhaps your most important step in evaluating a franchise opportunity is examining your own skills, abilities and experience. The ideal franchisee is a creative, outgoing person who is eager to succeed, but not so independent that he or she resents other people's advice. You must be able to balance your entrepreneurial initiative with a willingness to comply with the business formulas used by the franchiser. Remember, a successful partnership between a franchisee and franchiser involves a mutual understanding of each other's values and achievements.

Determine exactly what you want out of life and what you are willing to sacrifice to achieve your goals. Be honest, rigorous and specific. Ask yourself: Am I qualified for this field

• Physically?
• By experience?
• By education?
• By learning capacity?
• Financially?

Ask yourself how this decision will affect your family. Do they understand the risks and sacrifices required, and will they support your efforts? Beginning a franchise business is a major decision that does not ensure easy success. However, an informed commitment of time, energy and money by you and your family can lead to an exciting and profitable venture.

Attending a franchise exhibition allows you to view and compare a variety of franchise possibilities. Keep in mind that exhibitors at the exposition primarily want to sell their franchise systems. Be cautious of salespersons that are interested in selling a franchise that you are not interested in. Before you attend, research what type of franchise best suits your investment limitations, experience, and goals. When you attend, comparison shop for the opportunity that best suits your needs and ask questions.

Know How Much You Can Invest: An exhibitor may tell you how much you can afford to invest or that you can't afford to pass up this opportunity. Before beginning to explore investment options, consider the amount you feel comfortable investing and the maximum amount you can afford.

Know What Type of Business is Right for You: An exhibitor may attempt to convince you that an opportunity is perfect for you. Only you can make that determination. Consider the industry that interests you before selecting a specific franchise system. Ask yourself the following questions:

Have you considered working in that industry before?

Can you see yourself engaged in that line of work for the next twenty years?

Do you have the necessary background or skills?

If the industry does not appeal to you or you are not suited to work in that industry, do not allow an exhibitor to convince you otherwise. Spend your time focusing on those industries that offer a more realistic opportunity.

Comparison Shop: Visit several franchise exhibitors engaged in the type of industry that appeals to you. Listen to the exhibitors' presentations and discussions with other interested consumers. Get answers to the following questions:

• How long has the franchisor been in business?
• How many franchised outlets currently exist? Where are they located?
• How much is the initial franchise fee and any additional start-up costs? Are there any continuing royalty payments? How much?
• What management, technical, and ongoing assistance does the franchisor offer?
• What controls does the franchisor impose?

Exhibitors may offer you prizes, free samples, or free dinners if you attend a promotional meeting later that day or over the next week to discuss the franchise in greater detail. Do not feel compelled to attend. Rather, consider these meetings as one way to acquire more information and to ask additional questions. Be prepared to walk away from any promotion if the franchise does not suit your needs.

Get Substantiation for Any Earnings Representations: V Some franchisors may tell you how much you can earn if you invest in their franchise system or how current franchisees in their system are performing. Be careful. Make sure you ask for and obtain written substantiation for any income projections, or income or profit claims and get an opinion from a chartered accountant. If the franchisor does not have the required substantiation, or refuses to provide it to you, consider its claims to be suspect.

Take Notes: It may be difficult to remember each franchise exhibit. Bring a pad and pen to take notes. Get promotional literature that you can review. Take the exhibitors' business cards so you can contact them later with any additional questions. Avoid detailed questions at the booth, and schedule meetings after the expo for a 1-1 discussion, to understand properly.

Avoid High Pressure Sales Tactics:  You may be told that the franchisor's offering is limited, that there is only one territory left, or that this is a one-time reduced franchise sales price. Do not feel pressured to make any commitment. Legitimate franchisors expect you to comparison shop and to investigate their offering. A good deal today should be available tomorrow.

Study the Franchisor's Offering:  Do not sign any contract or make any payment until you have the opportunity to investigate the franchisor's offering thoroughly. Take time to speak with current and former franchisees about their experiences. Because investing in a franchise can entail a significant investment, you should have an attorney review the document and franchise contract and have an accountant review the company's financial disclosures or engage a reputed franchise consultant who can help you on all of the above.

Before you invest in a franchise system, investigate the franchisor thoroughly. In addition to reading the company's disclosure document and speaking with current and former franchisees, you should speak with the following:

Lawyer and Accountant: Investing in a franchise is costly. An accountant can help you understand the company's financial statements, develop a business plan, and assess any earnings projections and the assumptions upon which they are based. An accountant can help you pick a franchise system that is best suited to your investment resources and your goals. Franchise contracts are usually long and complex. A contract problem that arises after you have signed the contract may be impossible or very expensive to fix. A lawyer will help you to understand your obligations under the contract, so you will not be surprised later. Choose a lawyer who is experienced in franchise matters. It is best to rely upon your own lawyer or accountant, rather than those of the franchisor.

Banks and Other Financial Institutions: These organizations may provide an unbiased view of the franchise opportunity you are considering. Your banker should be able to help you understand clearly your financial implications and the franchise business you are exploring.

Consumer Complaints: Check through the internet, if you see some complaints or issues about the company. You can also reach your local consumer grievances cells and Ask if any consumers have complained about the company's products, services, or personnel.

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