What Are Some Advantages and Disadvantages to Franchising?

A Video FAQ with Mark A. Williams.

There are a lot of advantages and disadvantages to franchising. Some of the advantages include that you are buying a box, something that has already been proven–a strategy, a brand, a system. You can buy into a franchise with little or no experience in that area and have a successful business because you are trading on the brand that has already been created. Now, because of that the franchisor wants some things from you. They are going to want a fee up front, they are going to want royalty payments, they are going to restrict you to only operating the business the way that they want you to. There is usually very little flexibility to go outside of their system or even to sell other products or services on the side. Once your franchise is over, once it is terminated, you usually have to stop doing that business. So once you get into a franchise, you usually have to think about staying in it for the rest of your career or selling the business.

© 2014 Parsonage Vandenack Williams LLC

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FTC’s New “Business Opportunity” Rule Takes Effect

The FTC’s new Business Opportunity Rule took effect on March 1, 2012.  Companies currently adhering to the Interim Business Opportunity Rule should switch over to the new disclosure format immediately.  Although the new rule reduces the seller’s disclosure obligations (from 20 items to 5 items), the rule applies to more businesses than ever.  The new rule has expanded coverage to work-at-home businesses and other new enterprises covered under the interim rule.  Franchisors currently subject to the FTC Franchise Rule are exempt from compliance.

Under the new rule, a “business opportunity” is any commercial arrangement where the seller solicits prospective purchasers; purchasers are required to make a payment to obtain the business opportunity; and the seller represents that assistance will be provided regarding locations, accounts/customers, or with the repurchase of goods the purchaser makes.  On the new disclosure form, sellers must provide disclosures regarding: seller information; earnings claims; legal actions; cancellations or refunds; and a list of purchasers.

Sellers should remember that they may have to comply with state laws in addition to FTC rules.  26 states, including Nebraska, require similar disclosures by business opportunity sellers.  Sellers operating in these states will not only have to file disclosure documents with the FTC, but will have to make the state-required disclosures as well.

© 2012 Parsonage Vandenack Williams LLC

For more information, contact info@pvwlaw.com