Key Considerations in selecting Franchise Opportunities
- What Types of Franchise Opportunities are Available?
- What kinds of Disclosures are Required?
- How Can I Finance My Franchise Purchase?
What Types of Franchise Opportunities are Available?
Franchise Opportunities are generally categorized into two types: product/trade-name franchises (commonly referred to as distributorships) and business-format franchises. The produce/trade-name franchise has been around for long time, and the business-format franchise is a newer development that is very popular today.
The produce/trade-name franchise is often called a distributorship because it is associated with such household names as General Motors, Exxon, and Coca Cola. The franchisor makes distribution agreements with the franchisee. These franchises account for over half of all franchise sales but have less than half the total outlets.
Under the business-format franchise arrangement, the franchisor establishes a fully integrated relationship which usually includes a product or service (or both), a trademark, marketing plans, operating manuals, quality standards, quality control, ongoing communication, and advertising. Typically, the franchisee pays an up-front fee to start and a percentage of all revenues ongoing.
These franchises cover the entire spectrum of products and services. Recognizable names include such well-known franchise systems as McDonalds, Krispy Kreme Doughnuts, and Century 21.
What Kinds of Disclosures are Required?
If franchise opportunities includes use of a name, use of a system or marketing plan, and payment of a fee greater than $500 within six months, the business opportunity is regulated by the Federal Trade Commission and the Utah Business Opportunity Disclosure Act and requires that whoever is selling the opportunity provide qualified disclosure documents. Generally, this disclosure is in the form of a franchise prospectus that discloses all of the costs and fees associated with the opportunity. Be wary of any opportunity that has those elements and does not include proper disclosure.
How Can I Finance My Franchise Purchase?
Most new franchises are financed through the franchisor or with the assistance of the franchisor. The purchase of an existing franchise is financed much like any other business purchase. Click here for more information on funding a small business. Either way, Alpine Business Brokers has the contacts and expertise to assist you.