How to minimize risks when buying a franchise

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What you need to do before purchasing a franchise is to minimize the risks.

Experts advise entrepreneurs who are thinking about acquiring a franchise to approach the choice of a potential franchisor partner as carefully as possible. Use only reliable resources, which provide the most complete information about the offers of franchising companies. If possible, visit a specialized exhibition dedicated to franchising (such exhibitions are regularly held in the capital). Deal directly with the franchisor, and not with numerous intermediaries and agents who charge money for their services, but do not give any guarantees.

The more information you can find out about the franchisor in the media and on the Internet, the better. Be sure to visit the headquarters of the parent company and, if possible, its retail outlets/production, and ask for a copy or number of the trademark registration certificate. You can check these data for authenticity on the website of the Federal Institute of Industrial Property (FIPS). When studying sources of information, pay attention to analytical articles and reviews, and to the opinions of former and current franchisees of the company you are interested in, which can be found on various thematic sites and forums. These opinions can be much more useful to you than official data. You will see what the partners of the company you are interested in like and dislike, what are the real payback periods and profits, and what difficulties you may encounter in the process of work. Feedback from real franchisees can also be obtained directly from the latter. If the franchisor refuses to provide you with the contacts of its partners, this also says a lot. However, you can find this information on your own on the Internet or with the help of a patent attorney who will search the database of registered trademarks and service marks.

Even the official history of the company will tell a lot: the year the company was founded, the year the franchise program was launched, the number of franchised enterprises and their location, and the number of own enterprises. A company that was founded less than a year ago and started selling franchises half a year ago is hardly credible. It takes at least 1.5-2 years to debug the franchising system.

Review the financial terms of the franchise. Experts believe that the best option is a small lump-sum fee (or even its absence) and a high royalty rate. This means that the franchisor is confident and interested in the development of your enterprise because its profit directly depends on your success.

At the next stage, read all the documents – the franchise agreement and the franchise book. What does the franchisor mean by support, what does he give to his partners? Beautiful design, colorful pictures, and impressive diagrams in presentations, although they command respect, may not have anything significant in their basis. In addition to the transfer of printed materials, the franchisor must provide training to its partners. This training also includes training and seminars for employees of the franchised enterprise. Do not be afraid of control by the franchisor. But this control must also be accompanied by support in all areas of the franchisee’s activities.

The commercial concession agreement is a single and clearly formulated document. It cannot be replaced by other separate documents or packages of documents, it cannot be transmitted by letters, faxes, and other correspondence. The main condition of the franchise agreement is the transfer to the user of certain rights belonging to the copyright holder. The exact list of transferred rights may change, but they must include the right to use the trade name and/or commercial designation and the right to use protected commercial information that the user needs to exercise the rights transferred to him. In the contract, the right holder must indicate the actions that he undertakes to take to provide the user with free access to the necessary commercial information. Also, the contract must indicate the duration of its validity, the amount of remuneration that one party pays to the other, as well as the procedure for its payment. Failure to comply with these conditions (lack of the specified period or incorrect wording) may become the basis for terminating the contract of one and the parties and terminating the conditions for its implementation on their part. Of great importance is a clear description of the responsibilities of the parties and an indication of cases when certain actions can be regarded as a violation of the terms of the agreement.

The contract is submitted to the registration authority in three copies, which are recommended to be signed on each page. The registered contract has a corresponding mark on the first page indicating the registration number and date.