Franchises provide you with an opportunity to begin a business without some of the usual risks involved. A franchise is an already established business that has decided to branch out to more locations without using chains. In a franchise you actually own the business, but the business model, plan, and certain parameters are that of the original company.

Technically you can look at buying a franchise as a joint venture where you have a third party, the franchisee and the business which is the franchisor. There is an agreement made between both the franchisor and franchisee which determines how long the arrangement will last. Typically the venture is a yearly contract with a renewal each year. There is a legal contract required to operate a franchise. We will be looking at the legal document, as well as other things you need to know about when buying a franchise.

The contract will give the franchisee the right to use the trademark of the franchise they have bought into. The contract will outline very specific aspects of the deal. The first and most important element is often the fees associated with the trademark. The franchisor may require an upfront payment and a yearly renewal of the contract. Another franchisor may wish to take a percentage of the revenue rather than a lump sum at the beginning. In any franchise situation you will have to pay the franchise company some fee in order to use their name, business plan, and other elements of the business.

The franchisor will also have the franchisee follow specific rules. There are protocols one must follow such as using the same vendor. In a franchise the successful aspects of a business are often what products are being sold, how the place is run, and the employee attitudes. These three aspects will be part of the agreement stated in the contract. As long as a franchisee follows the business format there should not be any issues.

The franchisor wants to protect them because one bad customer experience can be a detriment to the other franchises out there. The contract will often be sided with the franchisor to ensure their business is protected. As a recap we have a list of the things you need to consider when buying into a franchise:

• What payment is expected?


• Will there be an annual fee, plus a percentage of the revenue taken?


• What requirements are stated in the contract?

These three points will be your determiner for whether the franchise is a viable option, as well as helping you to find what you need to know about the company. If anything you find in the contract does not agree with the type of business you wish to own you may find a franchise is not for you or at least that specific franchise. Since the contract is a legal document you must be 100 percent committed to the contents of the document to avoid losing your investment.