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Issues to Consider before Franchising

Many of my franchise law posts focus on legal tips to consider when buying a franchise. However, an established small business owner may also benefit from an attorney’s counsel when he or she is considering an expansion into the franchising arena. Becoming a franchisor involves a unique set of issues.

First, an attorney can help clarify a business owner’s desire to franchise. One benefit is that franchising may allow expansion without a corresponding increase in up-front capital. Ideally, having more units will boost profits and create additional economies of scale.

However, the lack of up-front capital does not mean that the process is easy. Indeed, a lot of paperwork can be involved, due to both state and federal regulations. Furthermore, even the successful completion of the required legal steps doesn’t guarantee a potential buyer. According to a 2008 international study, over 40 percent of the companies that became eligible to sell franchises in the year under review had not yet made their first unit sale over a year later.

An attorney can help a business owner not only evaluate his or her business model, but also measure consumer demand via market research. An attorney can also help an owner consider whether it would make more sense to open additional units before franchising them.

Finally, and perhaps most importantly, an attorney can counsel an owner on how his or her daily duties might change once the transition to a franchisor is complete. Instead of having complete control, a franchisor often assumes multiple roles, including teacher and salesperson. That's worth considering before taking the leap.

Source: Entreprenuer, “Franchise Your Business in 7 Steps,” Carol Tice, June, 2016

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About Mario Herman

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Based in Washington D.C, franchisee attorney Mario Herman represents franchisees domestically and internationally in negotiation, mediation, arbitration, and litigation with their franchisors. Mr. Herman affiliates with local counsel on an as needed basis. He has practiced nationally and internationally for twenty five years, has an excellent reputation, and has very reasonable rates.

Mario Herman's column is syndicated to Blue MauMau by permission of the author. His insights and information are also available at franchise-law, and International Franchise Law.

Area of Interest
Franchise Operations