Tag: franchise

Once you begin expanding your business by using investors you must be careful that you're not crossing the border into franchise territory. The definition of a franchise is an authorization by a company to a third party enabling them to carry out specified commercial activities, use their trademark, and follow their business model.  In exchange for that authorization, the third party compensates the company with fees and royalties. If you are intertwined in a business partnership that meets this criterion, you may accidentally have started franchising your business.

While there are many benefits to franchising your business, an accidental franchise could get you into deep water.  If you are providing an investor with a 'license' to use your business model and are requiring training and providing support, then technically you are a franchise.  There are legal repercussions to operating like a franchise and you could be subject to hefty fines.  Franchisees have rights of their own that could allow them to revoke their contracts, as well as the right to take further legal proceeding. You may even be culpable of a felony, in some states.

If you're concerned that you may be crossing into franchise territory and want to make sure you're legally in the clear, follow these simple steps:

  1. Control is in the hands of the business owner or licensee.
  2. There are no limitations on marketing and distribution of the products/services.
  3. Training is limited to the knowledge of the product/service.

If you feel that you have crossed into franchise territory, then you might want to contact your attorney or give us a call.  We can provide you with a litmus test to help you assess whether or not you are a franchise.

 

Franchise or Organic Growth?

Colonel Sanders said this, "I could see it wasn't going to be easy. I couldn't give a franchise to any old greasy spoon. And I knew the chicken had to be cooked the way I told them to cook it if it was going to be as popular as it could be."

Obviously, the Colonel figured it out.  There are nearly 4500 franchise units in the US.

Yet, should you franchise your business?  There two paths to add new locations beyond your existing store. The first is by organically growing where you expand by building new locations using your time, money and energy.  The next option is by developing a franchise system.  When you franchise your business you sell the rights to use your business name, logo, products/services, trademarks, and business model to an owner-operator, also known as a franchisee.  Franchisees use their capital to purchase these rights and build their own storefronts.

There 7 good reasons why many businesses prefer to franchise as a means for growth.  The primary reason is the opportunity to expand rapidly without investing a lot of capital.  Unit buildouts and grand openings are incurred by the franchisee.  And, since the design of the store matches that of your original store, the buildout time is less and so is the expense.  Here are some other good reasons why franchising is the best way to grow your business.

  • Staffing is performed by the franchisee -- Recruiting, hiring and training practices of employees are designed by corporate but executed by the franchisee.
  • Greater brand recognition -- Rapid growth allows for greater brand recognition.
  • Higher unit sales potential – Franchisees have vested interest to succeed and compete in the marketplace.
  • Group buying power – With increased buying power within the franchise system, comes leveraged contracts
  • Access to better talent – Most franchisees are successful professionals with a high business acumen, highly competitive and driven by $$$’s.
  • Promotes the ‘American Dream’ – Everyone should have the opportunity to achieve success and prosperity. By purchasing a ‘business in a box’ a savvy person can achieve their dream of owning their own destiny.

Click here to receive your free whitepaper on Franchising vs. Organic Growth.

If you are an entrepreneur thinking about expanding your business, then we can help.  Not every business can be a franchise.  We can help you assess which path is best for you.

The most important aspect of growing your business nationwide is trademarking your name.  If you are currently operating a successful brand locally as opposed to nationally, other businesses may be able to establish themselves in a different area of the country using your brand name.
Registering a domain name in Go Daddy does not prevent other businesses from using your brand name. Under the Fair Trading Act of 1986, the business's reputation in the market place determines the extent to which the business will be able to enforce their rights.  To avoid costly legal battles the best protection is by registering your brand as a trademark under the Trade Marks Act of 2002.
If you do not have a Trademark attorney, we would be happy to refer you to ours.