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Entries in franchise opportunities (3)

Thursday
Aug082013

Mmmmm…Donuts – Slam Dunkin' a Sweet Opportunity for Franchisees?

 

Franchise Agreement LawyerState Bar Certified Specialist, Franchise & Distribution Lawby Tal Grinblat
818.907.3284

 

Some say it's the coffee. Others say it's a fresh, hip menu and new look to go with the old favorites. Whatever the case, potential franchisees should chew on this: Dunkin' Donuts is set to shower Los Angeles and Orange counties in sugar-laden pink.

The donut chain is scheduled to open 45 new stand-alone stores in Southern California later this year. They've been selling franchises in Southern California since January.  Their first Southern California location opened at Camp Pendleton last year. And wait…there's more coming.

The donut chain is offering “non-traditional” locations to the franchisee-hungry market, in a baker's dozen of choices:

  • Airports
  • Big Box Retailers
  • Bus Stations
  • Casinos
  • College Campuses & Universities
  • Concert Venues
  • Healthcare Facilities
  • Supermarkets
  • School Campuses
  • Sports Stadiums
  • Theme Parks
  • Train Stations
  • Turnpike Service Plazas

Dunkin' Donuts says these unique venue storefronts have the benefit of captured audiences and high traffic.

 

A Sweet Deal for Franchisees?

 

For the time being, the franchisor is prepared to offer some incentives to buyers willing to set up shop. According to the Los Angeles Times, the donut chain will reduce royalty fees for the first few years of operation, and will kick in $10,000 for marketing.

The company expects to increase the number of units by about five percent this year, citing "incredible passion for the brand" in California, according to Chief Executive Officer Nigel Travis:

Expansion to California has always been part of our plan to grow Dunkin’ Donuts’ presence in the U.S. We have maintained our disciplined approach to expand steadily while focusing on initiatives to improve restaurant economics and franchisee profitability. These initiatives include our recent agreement with our franchisee-owned and operated distribution and procurement facility, which ensures the same cost of goods to franchisees in both established and new markets by 2015.

If you're considering purchasing a Dunkin' Donuts franchise, or any other franchise for that matter, you may want to read my blog: Before You Buy a Franchise, for more information.

 

Tal Grinblat is a Certified Specialist in Franchise and Distribution Law, designated by the State Bar of California's Board of Legal Specialization. Contact him via email: tgrinblat@lewitthackman.com for more information. 

 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Thursday
Nov102011

Before You Buy a Franchise | Franchise Information for the Uninitiated

 

Franchise Agreement LawyerState Bar Certified Specialist, Franchise & Distribution Lawby Tal Grinblat
818.907.3284

 

When you buy a franchise, you buy more than just the right to sell certain services and/or products. You buy name recognition, a marketing plan and the expertise of business professionals who hopefully have track records for competing in the marketplace.

There’s a certain amount of security in buying a franchise that has name recognition you don’t necessarily get when launching a brand new business concept – and that level of comfort can be especially attractive to new business owners.

However, buying a franchise can also involve significant financial costs and risks, so it’s important to do a thorough investigation before buying and signing any franchise agreement.

Franchise Lawyer Tips

Here are some things to consider:

1. Franchise Costs

You’ll want to consider the total cost of getting into the franchise, which involves more than the initial franchise fee. Before pulling the trigger, a prospect needs to consider all the following fees and costs of buying a franchise, such as:

▪ Franchise Fee – Depending on the franchise system involved, this fee could be several thousand to hundreds of thousands of dollars.

▪ Real Estate – You will need to consider whether to buy or lease the site where your franchise will operate. Some franchisors will have strict specifications regarding the location of your new business.

▪ Build Out Costs, including Equipment — Not all franchises are equal in terms of build out costs.

Some systems require a relatively small initial outlay for build out costs (costs for building and equipping the franchise), if the franchise is a cart in a mall or a department within another store, for example.

Other systems can have significant costs which you will need to incur for constructing the premises following the franchisor’s criteria and equipping the franchise.

In addition, some systems require the purchase of proprietary systems, equipment and software, not readily available elsewhere which can increase the start up costs, sometimes fairly dramatically. Others do not. So it’s important to compare these differences among competitors.

▪ Royalty Payments – You’ll need to pay royalty fees for the use of the franchisor’s name and system. These payments may be a flat monthly fee or based on gross revenue by week or by month. These fees can range from three percent or more than ten percent off the top. You’ll need to study the franchise program to assess whether you can make a decent profit after royalties are deducted.

▪ Advertising Fee Contributions – Many franchise systems require franchisees to contribute to a national or regional advertising fund (in addition to local advertising requirements). These fees are used to promote the franchise system as a whole. This type of advertising can build brand recognition system-wide.

However, franchisors usually have wide discretion to decide the type of advertising to be used (Internet, broadcast, billboard) and how to direct the advertising—whether to focus on areas where there is a greater concentration of franchisees, etc. So these expenditures may not benefit all franchisees proportionately and franchisees generally have very little say on how the franchise system spends this money.

2. Franchise Choices

 

In conducting your due diligence, how do you find out which franchise is right for you? First, you should decide on a particular industry based on the type of work you like to do. Then determine how much time you are willing to commit to that work. Do you want a franchise with a set, 9-5 schedule? Are you interested in food service, graphic design, or auto repair?

There are many ways to choose the right franchise for you. Three methods for doing so are:

▪ Getting Recommendations from Existing Franchisees – One of the best resources to determine whether a concept is a good franchise opportunity includes speaking to existing franchisees. An existing franchisee can provide information about the franchisor’s principals (are they easy to deal with), whether the franchisee recommends the franchise system and the potential sales and revenue a franchisee can expect to derive.

▪ Attending Franchise Expositions – There are various franchise trade shows, such as The West Coast Franchise Expo in Los Angeles. These are great forums for discovering the wide variety of franchise opportunities available.

▪ Consulting Franchise Brokers – A broker can match your interests, resources and needs to available franchise opportunities. However, most brokers work on commission and may try to match you to the franchises that require larger franchise fees.

Other brokers may work with a limited number of franchisors, so they may offer you fewer choices than brokers that have a wider network of referral opportunities. It is therefore important to conduct due diligence on any broker you speak to.

3. Franchise Disclosure Documents

The Federal Trade Commission requires a franchisor to provide you with a disclosure document (usually referred to as an FDD) at least 14 days before you sign a franchise agreement or pay any money to the franchisor.

▪ Business Background – of the franchise company and its officers, directors and managers, special laws that affect the franchise, required permits to operate the franchise and general description of the competition.

▪ Litigation History – material litigation, administrative cases, government orders and injunctions affecting the franchisor and its principals in the last 10 years.

▪ Bankruptcy – recent bankruptcies filed by the franchisor and its principals in the last 10 years.

▪ Franchise Costs and Initial Investment – initial and ongoing royalties, advertising fees, and all other payments the franchisee must make both to enter the franchise and during the franchise relationship. The franchisor will also provide information on the expected initial investment to enter the franchise.

▪ Training – provided by the franchisor before start of the franchise.

▪ Exclusivity – provided by the franchisor from other franchisor owned and franchised outlets.

▪ Information – on the number of franchised and company owned outlets, terminations, non-renewals, etc. – the FDD will provide information on current and former franchisees, number of franchisee terminations, cancellations and non-renewals in the last three years and other useful information to find out whether the franchise system is stable or rife with turnover.

▪ Restrictions imposed on franchisees – in terms of supplies, services, sales, products offered, etc.

▪ Renewal, Transfer Obligations and Post Termination Obligations – Conditions imposed by the franchisor for renewing the franchise, selling or assigning the franchise to another; and any post termination obligations, including the existence of any non-compete requirements.

▪ Audited Financial Statements – the FDD will include audited financial statements going back 3 years to enable the franchisee to assess how the franchisor is doing financially, whether the franchisor is making or losing money and whether they are financially stable or in decline. The audit report will also indicate whether the auditor believes the franchise company is showing signs of trouble.

Other than the above, there are many sources of information available through the Federal Trade Commission, the California Department of Corporations and other sites. So be sure to do your due diligence before jumping in.

The most important consideration before buying a franchise though, is protecting yourself financially. Be sure to have your accountant and franchise attorney look over the franchise documents, including the terms of the agreements, financial statements and the franchisor’s business structure, before you sign any agreements to ensure it’s the right fit for you.

Tal Grinblat is a Certified Specialist in Franchise and Distribution Law, as specified by the State Bar of California. For more information, call Mr. Grinblat at 818.990.2120.

 

 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Tuesday
Sep202011

When to Franchise Your Business - 7 Questions to Ask

Franchise Agreement LawyerState Bar Certified Specialist, Franchise & Distribution Law

 

by Tal Grinblat

818.907.3284

 

When to franchise, or not to franchise. . .that is the question many business owners routinely ask themselves.  There are certain guidelines and considerations companies can assess in deciding whether or not it’s time to franchise.  Here are some considerations:

If you’re content with the size of your business, your income, the positioning of your brand in the marketplace, the breadth of work involved in maintaining your business...then perhaps franchising is not for you. 

But if you want to grow your business and look forward to having new challenges to overcome, one very effective way to do so (with the added benefit of using other people’s money)  is through franchising. 

In deciding when to franchise, you should consider these questions:

1. Are You Profitable? Will Your Franchise be Profitable for Others?

This may seem like a no-brainer, but you’re not going to find people who want to buy into a struggling business model. And if you’re thinking franchising your business will actually turn diminishing profit margins around, it won’t.

You’ll need to take a look at why you are profitable and whether or not your income depends on fads, or solid products and services which can be turned into sustainable profits for years to come.  Franchised concepts that do not make a profit for their owners will not survive long, and may also lead to litigation.

2.  What is Your Business Model?  Will You Attract a Large Pool of Franchisees?

If entering the franchise will be too cost-prohibitive for potential licensees, you may not get many buyers. Franchising a new cleaning company for example, could be affordable to many people looking to break into business ownership. Franchising space travel launching pads would only be feasible for certain billionaires.   

3. Why Franchise Your Business? What are you offering that’s new?

You should consider your company’s unique traits that make you different and better than your competitors. If you’re not sure you have any unique traits that differentiate you from others, it may not be the right time or business to franchise.

4. Is Your Concept Replicable?

If your franchise concept is too dependent on your special qualities and traits which other franchisees may have difficulty replicating, franchising may not be for you. For example, a magician with unique skills and abilities may have difficulty franchising his magic concept if others cannot replicate these unique abilities.

5. Are You a Good Leader?

Are you prepared to offer support and training, and how much of it are you willing to provide? Many people who buy franchises are looking for guidance as they break into business ownership. But if you find it difficult to relinquish control, provide ample hand-holding for others, or are compelled to micromanage every last detail, selling franchises may not be an option for you.

6. How Will You Grow Geographically?

Imagine moving your business model from Los Angeles (or wherever your original store is headquartered) to Riverside. Will it still do well? Now try imagining it in Boise or Miami. If you think your concept will still draw customers and be profitable in many geographies, your business might make a good franchise.  However, if your concept is geographically dependent, like a windsurfing training camp, your market area for franchising may be more limited.

7.  What is the Regulatory Climate for your Business?

You should also consider specific regulations for your business. Are there certain states or geographies where your franchise will not succeed?  Will you need special permissions in local, county or state governments for your business? You’ll need to do plenty of due diligence before launching into franchise agreements.

When to franchise is always a tough question for business owners wanting to expand operations. Hopefully some of the questions above can help you start thinking about your available options.

Tal Grinblat is a California State Bar Certified Specialist in Franchise and Distribution Law. He can be reached via email: tgrinblat@lewitthackman.com.

 

 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

LEWITT HACKMAN | 16633 Ventura Boulevard, Eleventh Floor, Encino, California 91436-1865 | 818.990.2120