Interested in Buying a Franchise? Contact a Commercial Litigation Lawyer Today!

It took the U.S. Census Bureau seventy-five years to complete their first report on the franchise industry. A popular business concept that was introduced by Howard Johnson’s in the 1930s, franchising has become a vital sector of the American economy. According to the report, which was completed in 2007, franchise businesses comprised 10.5 percent of companies with paid employees. The study also found that nearly 8 millio
Americans work at a franchise business!

Another important finding of the study was that franchising has branched out in recent years. In other words, they are no longer confined to the restaurant industry. Popular franchises now play a prominent role in the shipping, hospitality, and exercise industries. What is the appeal?

With nearly 33,000 stores in 91 countries, Subway is the largest fast-food chain on earth. As you probably know, they make sandwiches, which is really nothing new. Neighborhood delicatessens had been building and wrapping hoagies and grinders long before Subway came on the scene. So what made them special?

A recent article on CNNMoney.com not only confirmed that they are the largest franchise on earth, but also that they have one of the lowest failure rates in the industry. Only around 7 percent of their restaurants close each year, which is far lower than the national failure rate for new restaurants—25 percent!

What’s their secret? Like every successful franchise, Subway has a winning business model that is easy to duplicate no matter where a new restaurants is established. Though the concept is not original or new, their franchises are relatively easy to operate and the startup costs are low. Subway charges their new franchisees an initial startup fee of $15,000, which low by industry standards. They do this because they want their franchisees to succeed, since it means more annual revenues for them in the form of franchise fees.

How to choose the right franchise

As we mentioned, building or buying an existing franchise can be less risky than starting your own business. But this isn’t always the case. Some franchisors do not give their new partners the training and support they need to succeed. They simply let them use their name and business model and leave them alone. Although it might seem more intrusive and circumscribing at the start, it is often better to have a franchisor that is more hands-on than it is to have one that ignores you. It is also always a good idea to have a franchise lawyer review the franchise contract before you sign.

What you must know

As a general rule, franchise agreements with proven, global companies are non-negotiable. These companies have learned that the easiest way to evaluate the performance of their new franchisees is to make them all play by the same rules. There is very little wiggle room or variation in most of these agreements, as your franchise lawyer will undoubtedly explain.

It may seem counterintuitive, but it is generally a good sign when a franchise contract contains a lot of rules. Even if you are not a franchise lawyer, when you encounter a contract that is ambiguous and that includes substantive provisions that are open for negotiation, don’t walk away, run! This may signal that the company has little confidence in their brand and may not be interested in future growth. In other words, all they want are their franchise fees from their new owners. A good franchise lawyer or commercial litigation lawyer will be able to spot these charlatans from a mile away.