A DETAILED LOOK INTO THE PROCESS OF PURCHASING A FRANCHISE, AND HOW TO GAUGE IF THE OPPORTUNITY IS RIGHT FOR YOU

BY GARY C. ANGIULI • ANDREW R. SCHIMLER

For New Yorkers interested in fresh business opportunities with proven track records, franchising can be an enticing opportunity, but it’s important to understand how the process works – and if it’s right for you – before diving in. In general, a franchise is a method of distributing products or services. A franchisor is the party that establishes the brand’s trademark and the business system. A franchisee is the party that typically pays a royalty and often an initial fee for the right to do business under the franchisor’s trademark and business system. Examples include restaurants like McDonald’s and Burger King, retailers like Ace Hardware and Century 21, hotel brands like Marriott, plus tax services, pet stores, gyms, etc. To get started, a franchisee must purchase through a franchisor. That party will send a Franchise Disclosure Document to a prospective franchisee, which contains a great deal of information, including, but not limited to, the cost of the franchise, the start-up costs to purchase equipment and related items, the franchise term, the territory covered, and more.

There are advantages and disadvantages to owning a franchise. The first advantage is that it gives the business upfront name recognition, so the owner doesn’t need to spend money on advertising or building brand awareness. Another advantage is that a franchise provides a proven business model. In the case of restaurants, for example, the menu, method for preparing food, and relationships with food suppliers are already in place.

There are many factors to consider when deciding whether or not to purchase a franchise. Note that a franchise might be a declining asset because of the cost of equipment, increased wages for employees, cost of supplies, or declining value of a lease, as a franchisee typically does not own the land where their franchise is located. An additional factor to consider before purchasing a franchise is royalties, which are fees paid to the franchisor based on the percentage of the franchisee’s revenue. The last factor to consider is that owning a franchise does not allow for unlimited creativity or complete control, as the franchisee must follow the franchisor’s set guidelines. If a restaurant franchisor, for example, decides to eliminate a menu item that is not popular nationally, but is popular in your store or restaurant, that item will still have to be eliminated. Purchasing a franchise can be a great investment for people who are not looking to reinvent the wheel but rather follow a proven system.

Angiuli & Gentile, LLP, Attorneys at Law
1493 Hylan Boulevard / aglawnyc.com / 718.816.0005