Buying Into A Franchise

Typically, there are three ways for an individual or for a group of individuals to get into business:

• Buy an existing business
• Start up a new business
• Buy into a franchise

There can be advantages and challenges to each option. When it comes to buying into a franchise, there are several distinct advantages:

• There may be potential brand name recognition and territory protection rights.
• Potential franchisees could have access to existing franchisees to ask questions, learn best practices, etc.
• The franchise is typically able to provide a proven business model, business plan, and feasible financial targets.
• Franchisees may have access to vendors and suppliers, more advantageous pricing, and perhaps even more favorable financing sources than could be accessed on one’s own.
• There may be a potential for built-in operational and marketing support including potential assistance with site selection, staff training, and advertising assistance and support. It is to the franchisor’s benefit to see its franchisees prosper and grow.

With those advantages however, there are some issues that a potential franchisee should be aware of as well:

• You are typically bound by the franchisor’s rules and will not have complete control over the business. The franchiser will detail many of the management practices that you will be required to follow.
• You will typically be asked to sign a franchise agreement which may limit your options to operate a similar business should you ever decide to leave the franchise.
• In some cases, an upfront franchise fee and ongoing marketing fees are required.
• There may also be some personal criteria that a potential franchisee must have to be considered for a franchise, such as a certain personal net worth, a minimum number of years of industry experience, etc.

Enlisting the services of a qualified attorney, perhaps one specializing in franchise law, as well as an accountant should be strongly considered.

For additional information or assistance, please email us at cedsbsd@ky.gov or call 800-626-2250.

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