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March 4, 2021

Posted by: Siena Christopherson

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5 Things to Consider Before Jumping into Franchising

Amanda Dempsey recently joined our Zachary James and Kevin Homer on Thursday Thoughts to discuss tips and industry secrets of owning and operating franchise businesses. Dempsey, a corporate lawyer with Kent Franchise Law, was recognized as a 2019-2020 Pennsylvania Super Lawyer Rising Star. She is a franchising genius, having served both franchisees and franchisors in her practice.

We talked about all things franchising, including the differences between franchises and other business models, the advantages and challenges that come with franchising, and some of the legal and financial considerations. Watch the video below, or continue reading for our 5 Things to Consider Before Jumping Into Franchising.  

 

 

Don't be an "Accidental Franchisor"

Dempsey describes an ‘Accidental Franchisor’ as someone who ends up franchising without knowing they are franchising. Make sure you meet all of the legal obligations and know the difference between partnering with a business and franchising. Partnering is much less thorough while Franchising involves using branding and operational methods of a specific business. Many people share the “keys to the business” without realizing they’ve essentially begun a franchise model.
 

Know and comply with the FTC franchise rules

The FTC prohibits biased or unethical competition affecting commerce. Oftentimes this involves fraud within the franchise market. It’s important to have a strong understanding of the various regulations that surround the world of franchising or to partner with an attorney who can help ensure you’re providing the appropriate information and abiding by federal requirements.
 

Know the difference between a Franchise and a Multi-Location Business

There are many differences between the overall business structures and management/ownership arrangements. Owning a franchise also involves knowing the appropriate FTC franchise rules, while owning a multi-location business involves its own set of guidelines. Keep in mind that franchising, in addition to federal regulations, also requires that you follow the laws of the particular states in which you sell franchise locations. For example, there are 14 states that require permission and registration from an FDD (Franchise Disclosure Document) before selling a franchise in that state.
 

Does your concept have strong ‘Unit Level Economics’?

How much is the initial investment? How long will it take to get that investment back? If you’re considering purchasing a franchise location, consider calling existing franchisees and ask these questions. Much of this is disclosed by the franchisor, but it’s also helpful to speak o to fellow independent franchise owners. You’re about to make an investment that can often required an initial investment of hundreds of thousands of dollars, so make sure you do your homework and know what you’re getting into.
 

Does this business have a replicable system?

Can this be replicated? Why is this business successful and can you replicate it at another location? Look into why your business may be successful and see how replicating it may play out. Some businesses have been very successful for reasons that might be difficult in a different location or with different people involved, so this is something to consider whether you’re a potential franchisor or franchisee.

 

This list doesn’t do justice to the incredible information that we received during our Thursday Thoughts conversation. If you’re considering converting your business into a franchise model or purchasing a franchise of your own, consider watching the discussion above! Let us know in the comments what was helpful or any additional questions that you might have.

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