Rodney R Hatter & Associates – California Franchise Attorneys https://californiafranchiseattorney.com Board Certified Franchise and Distribution Law Offices Established 1985 Wed, 27 May 2020 04:49:37 +0000 en-US hourly 1 https://wordpress.org/?v=5.3.2 https://californiafranchiseattorney.com/wp-content/uploads/2019/09/cropped-Rodney-Hatter-Logo-Square@025x-32x32.png Rodney R Hatter & Associates – California Franchise Attorneys https://californiafranchiseattorney.com 32 32 What is A Franchise Fee? A Guide To Franchise Fees and Expenses https://californiafranchiseattorney.com/franchise-fees-and-expenses-guide https://californiafranchiseattorney.com/franchise-fees-and-expenses-guide#respond Wed, 27 May 2020 04:49:35 +0000 https://californiafranchiseattorney.com/?p=528 Being a franchisee has a lot of benefits. You’re a brand name people trust and you’ll already have a line of loyal customers at your door when you open. You’re in a heavily researched location proven to be successful for what you’re about to start selling and you have franchisors to help you train your …

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Being a franchisee has a lot of benefits. You’re a brand name people trust and you’ll already have a line of loyal customers at your door when you open. You’re in a heavily researched location proven to be successful for what you’re about to start selling and you have franchisors to help you train your new employees. But getting involved with a franchise isn’t cheap. 

When you’re looking to invest in a franchise and become a franchisee, there are a lot of fees and requirements involved. One of the most talked about costs involved with owning a franchise is the franchise fee. At Rodney R. Hatter & Associates, we get asked about franchise fees a lot. So let’s take a closer look what a franchise fee is and what you need to know about it.

What are Franchise Fees?

To put it simply, a franchise fee is the cost of entry. It’s an amount you pay up front to basically guarantee yourself a store (or multiple locations) within the company. It’s your license to own and operate the franchise business. 

Franchise Fee Costs

Franchise fees usually range from $20,000 to $50,000 (unless you’re considering a Master Franchise). The franchise fee depends on the individual franchise. This is not always public knowledge, but a few major fast-food franchises have made their franchise fees public. 

  • Taco Bell: $45,000
  • Wendy’s: $40,000
  • KFC: $45,000
  • McDonald’s: $45,000
  • Pizza Hut: $25,000
  • Subway: $15,000

It’s important to remember that the franchise fee is different from the total upfront cost of buying into a franchise. You need to ensure you’re aware of all the upfront costs involved with the investment before settling on a franchise to buy. 

Other Up-Front Costs

There’s a reason franchises require you to have a certain net worth. Sometimes the franchise fee doesn’t even make up half of the initial costs you’ll run into. One of the first costs you’ll encounter are professional fees, including hiring an attorney to review the contract and an accountant to look over the numbers. 

Before you open, you’ll also need to consider the location. You may need to rent or build your own office, store, or restaurant location. Other franchises only make you pay for part of this, but it’s still a cost to consider. Then there’s the mandatory signs and landscaping and then all of the inventory and equipment. Some places will also make you pay for the initial marketing as well. 

You’ll also have to purchase insurance and may have to invest in employee training. Some franchises have special programs you’ll need to participate in or make sure your employees have completed. 

Related: The True Cost to Open a Franchise

What are the Other Franchise Fees?


Once you’ve paid the up-front costs, there are other fees to consider. These could be ongoing costs of owning a franchise, like paying interest on loans, purchasing supplies, paying rent and utilities, paying employees’ salaries and even maintaining the building and fixing problems that occur. Another initial payment is supporting the grand opening costs. 

Most franchises also charge a marketing fee. This is usually 2-6% of gross sales. Even with a small marketing fee of 2%, that’s $500 a month if your monthly revenue is $25,000. That’s $6,000 a year, which isn’t all that cheap. 

One of the most common ongoing fees you’ll pay as a franchisee is royalties. Let’s take a closer look at what royalties are, so you can get a better understanding of what goes into owning a franchise of your own. 

Royalties

Royalty payments are usually made monthly or quarterly. They make up a big part of the “financial relationship” between you and the franchise. It’s an ongoing payment that’s typically calculated as a percentage of gross sales.

Royalty fees are often seen as “membership fees,” sort of like monthly or annual payments to remain part of a country club. At first, this might seem a little bit unfair. You paid the up-front franchise fee. What gives? The royalty fees franchisors collect go towards corporate and franchise-related expenses. 

Expenses

The royalty fee that a franchisor collects from a franchisee will usually cover the franchisor’s expenses related to getting that franchise up and running. This includes training and advertising, as well as any costs related to the new location. These ongoing royalty payments are how franchisors make their money, not the franchise fee. This is the fee that allows them to further expand the franchise. 

Support

One major benefit of investing in a franchise over starting your own business from scratch is that support from the franchisor. This includes field consultants, marketing plans, business strategies, and employee training. All of this is supported through your ongoing royalty fee payments. So you can sort of look at royalty fees as a way to pay for the ongoing support that makes your location successful. 

How Much Can You Expect to Pay?

Every franchisor will have their own method for ongoing royalty fee payments. The most common is a percentage of the gross sales you earn. This typically ranges from 5-9%. It’s usually a fixed percentage, but it can be increased or decreased depending on the amount of sales. 

Some places will even require a minimum royalty payment, set by a percentage or dollar amount. There are some franchises that determine the royalty amount as a set dollar amount by default, keeping past sales in mind. 

Conclusion

Investing in a franchise can be very rewarding. You are provided with a lot of support. There aren’t many startups that have advertisements and billboards being seen by millions of people all around the country. That brand name recognition provides you with loyal customers, waiting impatiently for you to open. 

While owning a franchise is a smart move for many investors, you must remember that there are a lot of costs involved. One of the most commonly discussed up-front franchise costs is the franchise fee. We hope this article gave you a better understanding of franchise fees and what it takes to get involved with a franchise. If you have more questions about getting involved with a franchise, contact Rodney R. Hatter & Associates today. We’ll help you get started and support you along the way. 

Related: 10 Benefits to Owning a Franchise

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What Are The Most Valuable Food Franchises? https://californiafranchiseattorney.com/most-valuable-food-franchises https://californiafranchiseattorney.com/most-valuable-food-franchises#respond Wed, 27 May 2020 03:03:39 +0000 https://californiafranchiseattorney.com/?p=521 Investors are drawn to food franchises because they’re a very lucrative business with a lot of marketing power behind them. They often have a loyal following and a huge customer-base in their strategically chosen location, meaning it’s almost a guaranteed success if done correctly.  Fast growth and capital are some of the biggest benefits of …

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Investors are drawn to food franchises because they’re a very lucrative business with a lot of marketing power behind them. They often have a loyal following and a huge customer-base in their strategically chosen location, meaning it’s almost a guaranteed success if done correctly. 

Fast growth and capital are some of the biggest benefits of becoming a fast-food franchisee, but it can be quite costly to get into some of the top brands in the business. Rodney R. Hatter & Associates has a lot of experience with franchise law and are quite aware of what goes into investing in these dominating food franchises. 

It’s often almost $1 million to open a valuable food franchise, but it can often be worth it. So let’s take a look at some of your options and what it takes to get involved. 

Related: 10 Benefits of Owning a Restaurant Franchise

McDonald’s Franchise

You will need a nonborrowed $955,000 minimum to be considered for a McDonald’s franchise. While a small number of investors choose to open a new facility (with a down payment of 40%), most owners enter the McDonald’s franchise by purchasing an existing restaurant directly from the company or another owner for a 25% down payment. There is also a service fee of 4% of gross sales.

One of the major benefits of joining McDonald’s franchise is the company’s intensive training. Another benefit is access to McDonald’s lender relationships, which have the lowest lending rates in the fast-food industry. 

Franchise Fee

$45,000

Subway Franchise

To open a Subway franchise in the United States, you’re looking at an investment between $116,000 and $263,150. This includes the complete setup, as well as operating expenses for the first three months. After opening, Subway franchisees also pay a royalty fee, which is 8% of their overall gross sales. 

Franchise Fee

$15,000

Pinkberry Franchise

To get involved with Pinkberry, a frozen yogurt restaurant, the initial investment ranges depending on the location, but it averages $310,000 to $615,000. Pinkberry has been pretty tight-lipped about the fees involved with their dessert chain, but it appears the investment has cash liquidity of $200,000 and a net worth of $400,000. Then there’s a 5% royalty fee and another 2% for marketing.

They also claim you could make $250,000 a month if you get 1,500 customers a day. In a bigger city, this seems likely. But maybe not in a small town. 

Franchise Fee

$35,000

Wendy’s Franchise

Wendy’s restaurant sign at night food franchise

Wendy’s is a pretty pricey franchise to take on. They require $2 million in liquid assets and a $5 million net worth for new multiunit franchisees or franchise groups. They also require a 4% royalty fee and another 4% for advertising. 

Currently, Wendy’s is not accepting applications for US franchises. Franchises in Canada and overseas are available though. 

Franchise Fee

$40,000

Domino’s Pizza Franchise

Unlike the previous franchises, Domino’s has two categories, internal and external. Internal franchisees are investors who have already worked with Domino’s as a general manager for over a year. External, as you can guess, are franchisees who haven’t previously worked at Domino’s. 

This is where things get even more interesting. The franchise fee to invest in a Domino’s is anywhere from zero bucks to $25,000. There are some groups of investors, including women, minorities and veterans, who will be offered lower fees. They even offer a quiz to find out the perfect franchise for your interests and finances. 

Domino’s franchisees go through a comprehensive training program, which discusses store operations, marketing, finance, human resources and more support. 

Franchise Fee

$0-25,000

Pizza Hut Franchise

Here’s another pizza place to consider. Well, as long as you have a budget between $1.3 million and $3 million and a net worth of $1 million, including $360,000 in liquid assets. 

Getting involved with Pizza Hut also includes a service fee that’s 6% of gross sales, along with an advertising fee of 2.5% to 3% of gross sales. 

While this probably sounds not too shabby, Pizza Hut has a twist. Franchisees must commit to building at least three Pizza Hut restaurants over the time period of three years. 

Franchise Fee

$25,000

Dunkin Franchise

Dunkin, once known as Dunkin Donuts, requires franchisees to have at least $250,000 liquidity and a net worth of $500,000 per unit. They have financial qualifications you must meet. And they also have one of those quizzes, too. 

The total investment initially ranges from $228,000 to over $1.6 million. There are also some markets that require a five-unit minimum, meaning you’d need a net worth of $2.5 million. 

Franchise Fee

$40,000-$90,000

Related: The True Cost to Open a Franchise

Taco Bell Franchise

By 2023, Taco Bell aims to have 2,000 new locations. This is both locally and overseas, including 200 new restaurants in the US within one year. 

So how do you get involved in this expansion? A stand-alone Taco Bell restaurant is between $1.2 million and $2.5 million. But this initial investment does not include the land or lease costs. There is also a royalty fee of 4% of gross sales, along with another 4% of gross sales for advertising fees. 

Franchise Fee

$40,000

KFC Franchise

KFC bucket of chicken and fries food franchise

Want to know Kentucky Fried Chicken’s secret 13 herbs and spics recipe? You’ll need a net worth of $1.5 million to $2.5 million. You’ll also need minimum liquid assets of $750,000. There’s also a royalty fee of 5.5% of your gross sales. 

Franchise Fee

$45,000

Conclusion

These were the top nine most valuable food franchises. While these fast-food chains will charge you the most for franchise fees and require the highest net worth to invest, you will get the most money back. These are trusted brands with food people crave. Franchisors have targeted certain locations where they know they will succeed and will be there to help with training and marketing. 

If you’re interested in buying a franchise or draft a franchise agreement, contact Rodney R. Hatter & Associates today. We are here to improve existing franchise programs and answer any questions you have about the franchise process and fees. 

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Licensing vs Franchising: What is the Difference? https://californiafranchiseattorney.com/licensing-vs-franchising https://californiafranchiseattorney.com/licensing-vs-franchising#respond Thu, 16 Apr 2020 04:06:19 +0000 https://californiafranchiseattorney.com/?p=504 During intense research on starting or growing a business, individuals may come across the concept of licensing and franchising. Franchising and licensing have some similarities, but they are quite different. Because of this, it’s vital to have a reliable legal team such as  Rod Hatter & Associates to have the proper contracts and agreements to …

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During intense research on starting or growing a business, individuals may come across the concept of licensing and franchising. Franchising and licensing have some similarities, but they are quite different. Because of this, it’s vital to have a reliable legal team such as  Rod Hatter & Associates to have the proper contracts and agreements to prevent any legal problems. With that in mind, we will explain the difference between these two, as well as the pros and cons.

What is Licensing? 

Licensing is where a specific party is granted the rights to a particular registered trademark of a brand. When this happens, the business relationship is established between the licensor, the person who owns the trademark, and the licensee, the individual who is granted the right to use the trademark. To use a registered trademark, the licensee will have to pay the licensor a royalty fee.

An Example of Licensing

The best example of a licensing trademark is Calvin Klein. Calvin Klein works with numerous manufacturers under a licensing agreement. This arrangement indicates that the company has loaned or licensed its brand to various manufacturers who use them to sell their products. Therefore, the Calvin Klein products, such as the perfume, jeans, and underwear, are all branded under a licensing agreement. 

woman wearing black sports brassiere

Using a recognizable and well-known brand like Calvin Klein under an agreement can help a lesser-known brand to get their product to the market and gain trust by the consumer faster than they would if they had built their brand from the start.

What is Franchising?

A franchise is an agreement between the franchisor and franchisees. The franchisor is the owner of the business and sells the rights of their brand and intellectual property to the franchisee, which opens up a separate branch under that brand name to duplicate the business model. Because of the franchise agreement, the franchisee typically must pay fees to the franchisor to open the business using their brand, business support, and advice. The franchisor will loan the brand for a particular cost as well as providing consultation, training, and expertise to the franchisee.

Related: How to Start a Franchise in 15 Easy Steps

An Example of Franchising

One of the most famous franchises is McDonald’s that started very small and has over 36,000 restaurants around the world. Other renowned franchise businesses, includes: 

  • Dunkin  
  • Pizza Hut
  • Burger King
  • Subway
  • Taco Bell
  • Baskin-Robbins

The concept of a franchise is that no matter which one you visit, it will all look and feel the same and offer the same products and services.

A McDonalds meal with food spread out on the table

Licensing Pros and Cons

Pros

  • Licensing is a secure investment because the licensee is purchasing the right to use a trademark that is already appreciated and recognized by a huge fan base.
  • Licensing has a more flexible and straightforward agreement because it only covers one or a few protective marks.

Cons

  • It is difficult to determine whether to create a licensing agreement in the first place and whether the agreement is crossing the legal boundary of a franchise.

Franchising Pros and Cons

Pros

  • The benefits of being a self-employed business owner without the risk of starting a business.
  • It contains a proven business model with an established customer base.
  • Less risky than starting a business from scratch.
  • They require a smaller investment than starting a new business. 
  • It provides franchisors an opportunity to scale their business rapidly while reducing the amount of work that is required to do that.
  • They are an excellent opportunity for the franchisee to work with the franchisor to learn new business skills and manage the business at the same time.

Cons

  • The franchisee will not have full control of the business because the majority of the decision is created and approved by the franchisor.

Related: Franchising Basics: The True Cost to Open a Franchise

Growing Your Business: The Beginning Stages

Licensing’s Role

In the beginning stage of building a business, choosing a licensing option can get business owners off to a fast start. It allows the licensor to grant licensees the rights to their trademark and intellectual property. The benefit of this is that the licensor can generate additional revenue and further expand the recognition of the brand. 

However, the problem is that it could lead to a particular limitation from a legal standpoint. This means that when granting a license to use a trademark or intellectual property, the licensor cannot be permitted to have control over how their licensees are using it. Plus, as the business keeps expanding, the lines between licensing and franchising begin to blur out, and it could be detrimental to cross the boundary towards the side of a franchise. This is why it’s essential to have an expert lawyer to properly draft out a license agreement to avoid a franchise liability.

Franchising’s Role

Franchisees start off to a slow start, but once they get going, their business begins to build momentum. This is mainly because, when it comes to the franchise industry, the individual will have to prepare an Franchise Disclosure Document or FDD, which can be very lengthy. Once all the agreements and FDD are appropriately drafted, the stringent regulation can be quite beneficial for both the franchisor and the franchisee.

Better Choice: 

In the early stages, between 6 to 18 months of expansion, a franchised business may start off slowly because of all the rules and regulations from the agreements and Franchise Disclosure Document. But once everything is set up, franchising is a better option than licensing. This is because licensing can lead to some limitations and legal problems as the business expands.

Related: What is the Difference Between a Franchisor and a Franchisee 

Growing Your Business: Stabilizing and Expanding

Licensing’s Role

Once the business stabilizes and starts expanding, that is where licensing will experience some issues. For example, just because one refers to a business entity as a licensing arrangement doesn’t mean it is not a franchise. Because of the nature of the relationship, it makes licensing individuals wonder whether there is a trademark license in place, whether they have control, and whether any fees are paid to them. Multiple questions will begin to rise, and legal problems may come up. All of this stems from regulatory bodies wishing to prevent the license business structure from entering the franchise domain.

Franchising’s Role

Throughout the whole expansion process, the franchise regulation will still apply, but the idea of duplicating the business model and having a franchisee open multiple stores in different locations, building a team, and running it can help the business grow and expand even more. The only issue is that the franchisor might accidentally violate the franchise law and leave themselves in a pretty dark situation. Fortunately, with the help of an expert legal team, like  Rod Hatter & Associates, a franchisor can prevent this from happening.

Better Choice: Franchising

Licensing is a role, but should never be substituted for a franchise. When it comes to building a business and expanding it, a franchise is still a better option than licensing.

Related: 10 Benefits of Owning a Restaurant Franchise

Hand holding a pencil on a desk with laptops facing it

Conclusion

At first, it may seem like both licensing and franchising are the same concept, but they are actually quite different. Both licensing and franchising are excellent ways to grow a business, but franchising is still the more popular option. This is mainly because of the way it’s structured in that the franchisor and franchisee work very closely together to manage and expand the business to various locations. However, even though licensing seems like the common sense option at first, it can lead to legal issues as the company expands. 

It’s essential to have legal experts such as  Rod Hatter & Associates draft contracts and agreements which thoroughly indicate the details between the franchisor and franchisee. This support will help reduce any liability or problems over the long run. With the right attorney and determination, anyone can run a successful franchise.

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What is a Franchise? https://californiafranchiseattorney.com/what-is-a-franchise https://californiafranchiseattorney.com/what-is-a-franchise#respond Thu, 16 Apr 2020 03:58:02 +0000 https://californiafranchiseattorney.com/?p=500 According to International Franchise Association, there are over 733,000 franchise establishments in the US which have provided over 7.6 million jobs and generated over $674.3 billion to the economy. The franchising industry has played a significant role in providing jobs, new markets, brand awareness, and more opportunities. Because of the impact that it has on …

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According to International Franchise Association, there are over 733,000 franchise establishments in the US which have provided over 7.6 million jobs and generated over $674.3 billion to the economy. The franchising industry has played a significant role in providing jobs, new markets, brand awareness, and more opportunities. Because of the impact that it has on the economy and people’s lives, it’s definitely encouraging to motivate entrepreneurs to pursue this type of endeavor. 

However, when it comes to opening up a franchise, there are a lot of contracts and agreements that require an expert legal team such as California Franchise Attorney.

With an excellent team and support, it’s vital to understand the concept of a franchise along with various examples.

What is a Franchise?

A franchise is a method of distributing products and services. There are at least two people involved in the franchise system, the first one is the franchisor who established the brand trademark and business system, and the other is the franchisee who pays the initial and royalty fee for the right to do business under the franchisor‘s business model. There are two types of franchising relationships, a Business Format Franchising and a Traditional or Product Distribution Franchising. 

The Business Format Franchising is where the franchisor provides the franchisee with the product, service, training, and the entire system for operating the business. The franchisee receives the development support and site selection, training, and brand standards from the franchisor. The other model is the Product Distribution Franchising, which is less common, but it often occurs in the manufacturing industry, gasoline, automated, and bottling.

Related: How to Start a Franchise in 15 Easy Steps

Franchising’s Focus on Values

When people think about the franchise, the first thing that they usually contemplate is the law. This is mainly because of all the contracts and legal agreements that franchise owners go through to open up a business. However, the initial inquiry that people should concentrate on is the value of the relationship, which reflects how the franchisor supports their franchisee, and how the franchisee delivers the products and services as well as meeting the brand standard.

Franchising’s Focus on Brands

The franchisor’s brand is the most valuable asset of the business. The consumer usually decides which store to shop at and how often to visit based on what they think and feel about the brand. Some consumers don’t care who owns the business as long as the brand expectations are met. With that in mind, the franchisee needs to develop a relationship with their customers to maintain loyalty so they will come back to purchase more products and services. 

Related: Franchising Basics: The True Cost to Open a Franchise

Franchising’s Focus on Support

An excellent franchisor provides a reliable support system along with tools and knowledge for the franchisee to succeed. The franchisee is expected to independently manage the operation of the business on a daily basis and to enhance the reputation of the company. When choosing a franchise system to invest in, it’s vital to evaluate the type of support that the franchisor can offer and how well its support is delivered.

One of the most common services that franchisors should provide to franchisees are:

  • Site selection and development assistance
  • Training
  • Recognizable brand name
  • Research and development of new products and services
  • Continuing marketing and advertising
  • Field and headquarters support

Franchisors must enforce brand standards to protect the franchisee from garnishing a lousy reputation. Since the customer views the franchise system as a branded chain consistently, excellent products and services delivered by the franchisee can benefit the entire system.

Related: The Difference Between a Franchisor and a Franchisee

Franchising’s Focus on Contractual Relationships

With a Franchise system, the owner of the brand does not operate or manage the location to service the customer because that’s the responsibility of the franchisee. After all, franchising is a contractual relationship between the licensor (the franchisor) and the licensee (franchisee). In a nutshell, the franchisor permits the franchisee to use the brand and business model to distribute the products and services to potential customers. 

Keep in mind that every franchise is a license, but not every license is a franchise. In the United States, a franchise is a specific type of licensing regulated by the Federal Trade Commission and by various states. The franchise exists when the franchisor licenses a franchisee permission to use the trademark. In addition to that, the franchisor supports the franchisee and also initiates a particular type of control. Before the business adventure can happen, the franchisee must pay the franchisor an initial or royalty (ongoing) fee. 

Because of the contractual relationship, it’s essential to have a franchise industry expert like California Franchise Attorney to draft up a thorough and detailed agreement between the franchisor and the franchisee. That way there will not be any misunderstanding or legal issues in the future.

Related: 10 Benefits of Owning a Franchise

Examples of Franchises in the US

McDonald’s 

The franchise fees for a McDonald’s is $45,000 with an initial investment of $1 million-$2 million. Fortunately, with a hefty investment, this is a highly recognized brand with support from experts with years of experience in the fast-food industry.

Dunkin’

The franchise fee for Dunkin’ Donuts is $40,000-$90,000, with an initial investment of $109,700 to $1 million. This business is recognizable in practically every state in the US, with over 32 locations worldwide. According to the Brand Keys Customer Loyalty Engagement Index, Dunkin’ Donuts is rated number one in customer service and satisfaction. They provide excellent support and training assistant with site selection, construction, operation, marketing, and management material to the franchisee.

Infographic showing top brands by customer loyalty

Source: Marketing Charts

Taco Bell

The franchising fee for Taco Bell is $25,000-$45,000, with an initial investment of $525,000-$2 million. This fantastic restaurant brand has been around for 50 years and has continued to develop brand recognition and financial stability.

The UPS Store

Initial investment for UPS store is $138,433-$460,000. The initial fee is $29,950. The UPS Store is a highly ranked franchise in the business service industry. It has excellent brand recognition, dedicated training and support, and financial stability. After all, 84% of the US population lives within 10 miles from the UPS store.

Planet Fitness

With Planet Fitness, the initial investment is $2,545,915, along with a 22% five-year growth rate and 1,494 total franchise units. The philosophy of Planet Fitness is a judgment-free zone, which makes first-time gym users feel comfortable throughout their fitness journey. The gym has over 40 million members, with franchisees taking home an annual income of $567,000.

Great Clips

The initial investment for Great Clips is $136,900-$259,400, with a franchise fee of $20,000. Great Clips have been in the business for over 30 years and have offered franchise owners with advanced technology training. It invests heavily on marketing and providing customers with the best experience.

Conclusion

Franchising can be a fun and exciting journey. It entails a robust legal team such as California Franchise Attorney to draft the contracts and agreements that details the relationship between the franchisor and franchisee. Once that is completed, the franchisee will have to pay the initial or royalty fee to obtain the trademark brand, support, marketing, services, and other tools from the franchisor to open and operate the business. Because the franchise brand is highly recognizable and has a huge fan base, it’s no doubt that the franchisor can experience growth and success in no time. 

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What are the Best Financing Options for a Franchising Business https://californiafranchiseattorney.com/best-financing-options-for-a-franchising-business https://californiafranchiseattorney.com/best-financing-options-for-a-franchising-business#respond Thu, 16 Apr 2020 03:53:22 +0000 https://californiafranchiseattorney.com/?p=496 A franchise offers independence and opportunity of owning a small business as well as the infrastructure and support from a large corporation. This is an excellent opportunity for anyone who wants to become an entrepreneur. However, opening up a franchise requires a significant investment capital, which includes franchise fees, advertisement costs, and royalty fees plus …

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A franchise offers independence and opportunity of owning a small business as well as the infrastructure and support from a large corporation. This is an excellent opportunity for anyone who wants to become an entrepreneur. However, opening up a franchise requires a significant investment capital, which includes franchise fees, advertisement costs, and royalty fees plus the amounts needed for setting up the franchised business itself. 

Unfortunately, not everyone has that kind of cash. Luckily, there are ways to make your franchising dreams come true.

Related: Franchising Basics: The True Cost to Open a Franchise

What is a Loan and Why Do I Need It?

A loan is revenue that people obtain from the bank, lender or other financial institution to pay for a mortgage, car, tuition, business, or anything. However, with a loan, the individual would have to pay back the money along with the interest rate. Fortunately, people usually set up a payment plan where they can make a monthly payment to pay off the loan.

It’s profitable to obtain a loan for the franchise because not everyone will have the initial payment upfront. After all, it is quite expensive, and getting a loan would be advisable. Once the business takes off and the individual obtains a substantial amount of profit, they can easily repay the loan in the future.

Interested in starting a franchise? California Franchise Attorney can help

How Do I Get a Franchise Loan?

The first step in applying for a franchise loan is to prepare for a meeting with the lender. This means that the individual should identify the type of franchise they want to pursue, along with having the supporting documents and loan package organized. 

The goal is to make an excellent first impression and prepare to impress the lender. After all, the lender wants to make sure that they trust the person opening up the business and that the money is being put to good use. 

The second step is to apply for a loan. The best place to start would be to look up a business lender, national lender, or bank. It’s profitable to target lenders that are familiar with the brand and have made loans to a franchise before. The process can take up to 120 to 190 days, and it’s normal to receive a bunch of rejections before someone is willing to offer the money.

Sometimes, lenders may charge an application fee and conduct a  hard credit check. It may take a while, so it’s profitable to be persistent because all it takes is one lender to make a franchise dream come true.

Financer Franchising

If a franchisee needs funds to purchase a franchise, the best thing to do is to have a conversation with the franchisor. A lot of corporations in the franchise industry often provide financial solutions design for their franchisees either through a specific lender or a partnership. This is a common way to finance a franchise, and it also has a variety of benefits. One of the main advantages of using the franchiser financing option is that it becomes a one-stop-shop. A lot of programs offer a financial solution not only for the franchisee but also for purchasing resources and equipment to start the business.

Related: How to Start a Franchise in 15 Easy Steps

Commercial Bank Loans

coins in a jar and stacked up

When it comes to commercial bank loans, people often consider a term loan. Under this model, the lender or a bank will provide a lump sum of cash upfront that the individual will repay along with interest rates and a monthly installment. With a commercial bank loan, the lender will want to review the business plan and credit history. The lender will use a document to assess the credit history and determine whether or not the individual can repay the loan.

SBA Loans

SBA loans are partially supported by the US Small Business Administration and funded by other lending parties. Since the SBA has reduced the risk to the lender by providing a portion of the loan amount, the lender is more willing to offer the loan with a lower interest rate and longer repayment terms. 

The SBA loan is an excellent option for financing a franchise only if the individual has the financial need and credit score to be eligible. Keep in mind that the qualification can be stringent, and the application process tends to be longer, but it’s worth it once the loan gets approved.

Contact California Franchise Attorney to help you buy a franchise

Alternative Lenders

Anyone who needs the fund to finance their business quickly can apply for an alternative lender. An alternative lender has less stringent guidelines and shorter turnaround time. They provide a variety of loan options such as term loans, business lines of credit, and equipment financing. Keep in mind that alternative loan options tend to be more expensive and offer shorter repayment terms and lower loan amounts than traditional lenders. Therefore, this is an option to supplement existing finance or for individuals who cannot qualify for an SBA loan or a bank loan.

Crowdfunding

One of the most innovative methods of obtaining finances is through crowdfunding. People can set up their crowdfunding page or search for specific organizations that can fund the franchise and business. Some places will crowdfund a particular business type or industry. Crowdfunding is an excellent option for people with issues in their financial history or unable to obtain a loan.

Friends and Family Loan

family taking a picture together

Borrowing from friends and family is also a good option. This loan option usually comes with an excellent price. Anyone who chooses to take a loan from a family member or friend should draft a contract that includes expectations and repayment terms. This is to prevent any disagreements and breakups later on down the road.

Are you a franchisee with a problem? California Franchise Attorney can help

Conclusion

Becoming the owner of a franchise is a great opportunity, but the initial cost is quite expensive. Fortunately, these loan options above can help future business owners to open up their franchise. Once the business profits, the franchise owner can repay the loan along with interest rates. 

Keep in mind that it’s vital to have an expert lawyer and legal team to look through or create contracts and agreements to prevent any legal issues. California Franchise Attorney have years of experience working in the franchise industry and have helped many franchisors and franchisee start their businesses. 

With all these excellent options available, anyone can jumpstart their franchise journey today.

Related: What Is The Difference Between a Franchisor and Franchisee

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What You Need To Know About Franchise Agreements https://californiafranchiseattorney.com/about-franchise-agreements https://californiafranchiseattorney.com/about-franchise-agreements#respond Thu, 16 Apr 2020 03:48:34 +0000 https://californiafranchiseattorney.com/?p=492 A franchise agreement is a document that outlines the franchisor’s terms and conditions for a franchisee, and it’s usually legally binding. Every franchise abides by these terms that are outlined in a written agreement between two parties. The franchise agreement is made at the same time the individual decides to join the franchising journey. Since …

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A franchise agreement is a document that outlines the franchisor’s terms and conditions for a franchisee, and it’s usually legally binding. Every franchise abides by these terms that are outlined in a written agreement between two parties. The franchise agreement is made at the same time the individual decides to join the franchising journey.

Since a franchise contract or agreement can be very complicated, it’s essential to have a reliable attorney to draft them up. Luckily, California Franchise Attorney has years of experience working with the franchise industry. 

With that in mind, here’s everything that a person would need to know about the franchise agreement.


Need a franchise agreement? Call Us Today +(949) 376-9977! 

Franchise Agreement Requirements

Here are three general guidelines for an appropriate franchise agreement

The franchisee’s business is associated with the franchisor’s brand. In addition to that, the franchisor and each of their franchisees are sharing a common brand.

The franchisor should provide significant assistance to the franchisee and how to use the brand to run the business. Because the franchisee is an independent contractor, their control over the brand does not include human resources of the franchisee, and it does not extend to help the franchisee manage the operations of business on a daily basis. The main objective is that the franchisee meets the requirement of the brand on a daily basis.

The franchisor receives a fee from the franchisee for the right to operate the business using the franchisor’s trademark. The initial fee or a continuing fee is usually around $500, which is adjusted annually under the changes of the law.

Related: Franchising Basics: The True Cost to Open a Franchise

Franchise Agreement Rights and Obligations

A franchise agreement is a license that provides the rights and obligations of the associated parties, which is the franchisor and the franchisee. The agreement is created to protect the franchisor’s intellectual property, and to ensure that their brand is operated in the appropriate manner that the franchisor has indicated in the agreement.

Even though everything is written in the agreement, it is meant to last at least 10 to 20 years. That means the franchisor needs to find ways to grow and expand the brand as well as making changes to stay competitive with consumer trends.

franchise agreement will also  include an initial franchise fee payable when the agreement is executed and on-going payments or royalties typically based on a percentage of revenues from the franchised business.

 The agreement should also be flexible enough to allow the franchisor to make particular modifications in response to the franchisee’s specific needs. 

a good and proper franchise agreement should be written in plain English, not too long and one-sided and should be capable of understanding without having a lawyer interpret parts of it. 

Need a franchise attorney? Call Us Today +(949) 376-9977! 

What to Do Before Signing a Franchise Agreement

The FTC requires that franchisors offer franchisees a pre-sale FDD, which is the franchise disclosure document. This document provides franchisees with essential information that is required for purchasing a franchise. The document should include the risk and rewards as well as how the franchise compares with other investments that are out there. 

Keep in mind that the franchisors are required to provide the FDD to the franchisee at least 14 days before signing it. If the franchisor decides to make any specific changes to the agreement, it must allow seven days for the franchisee to review the completed agreement before signing it. 

Usually, these agreements are very long and detailed, so it is essential to provide an ample amount of time for the franchisee to read through everything and to have a thorough understanding of it. This is why it’s vital to have experienced lawyers and other advisers like California Franchise Attorney for advice and consultations.

Need franchise advice? Call Us Today +(949) 376-9977! 

Basic Elements of a Franchise Agreement

Here are some basic elements that the franchise agreement has to deal with.

Overview of the relationship:

The relationship involving the franchise agreement includes the owner of the intellectual property, parties in the contract, and the overall obligation of the franchisee to run the business following the brand’s standards and guidelines.

Duration of franchise agreement:

The duration involves the franchisee’s successor rights to new agreements, length of the relationship, and the need to upgrade the franchisee’s location.

Initial and continuing fees:

The franchisee usually pays the fee to the franchisor for entering into the business. The agreements also include several fees, and most franchise systems would offer payment to a brand or advertising fund that is used by the franchisor to market the brand to the public.

Related: How to Start a Franchise in 15 Easy Steps

Assigned territory:

Not every franchise agreement provides the franchisee with an exclusive territory. Franchisors need to deal with reservation of their rights within the franchisee’s territory, which includes sales over the internet and alternative distribution sites.

Site Development:

Usually, franchisees will find their own location and develop the business according to the franchisor’s guidelines. The primary role of the franchisor is to approve the site that the franchisee has chosen so that they can begin the operation of the business.

Training and Support:

Franchisors usually provide pre-opening support, which includes supply chain, quality control, training, headquarter support, and field.

Use of intellectual property:

The IP is the most valuable asset in the franchise system and will continue to change and operate as the system evolves. The agreement indicates what a license to the franchisee is and how they can use the IP as well as the rights of the franchise or to upgrade the system according to the changes of the franchisor’s operating manual.

Advertising:

The franchisor will determine the advertising commitment and what fees are required to pay towards these costs.

Insurance requirements:

The franchise agreement will indicate the minimum insurance a franchisee should have before opening the business based on the terms of the agreement.

Record keeping:

The franchisor will indicate the type of records that the franchisee will need to maintain; software that the franchisee can use, and the rights to audit and access certain information.

Need franchise advice? Call Us Today +(949) 376-9977! 

Conclusion

In order to create the proper set of franchise agreements, each part of the elements needs to be evaluated by a lawyer. Luckily, Rod Hatter & Associates is experienced at both drafting and reviewing franchise agreements and the FDD. 

With the proper agreement, anyone can start their exciting franchise journey today!!

Related: What Is The Difference Between a Franchisor and Franchisee

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Franchising Basics: The True Cost to Open a Franchise https://californiafranchiseattorney.com/franchising-basics-the-true-cost-to-open-a-franchise https://californiafranchiseattorney.com/franchising-basics-the-true-cost-to-open-a-franchise#respond Thu, 16 Jan 2020 21:53:30 +0000 https://californiafranchiseattorney.com/?p=419 Opening a franchise can be a dream come true. Unfortunately, the cost can be astronomical as fees begin to accumulate. Keep in mind that there is not a set price on how much it costs to open up the business. It varies from one franchise to another. It depends on the location, number of workers, …

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Opening a franchise can be a dream come true. Unfortunately, the cost can be astronomical as fees begin to accumulate. Keep in mind that there is not a set price on how much it costs to open up the business. It varies from one franchise to another. It depends on the location, number of workers, type of franchise, and much more.

At Rodney R. Hatter & Associates, we’re committed to making your franchising process an easy one by providing legal counsel and contract assistance for every stage of the process. If you’re interested in franchising, here’s a quick breakdown of the costs.

Related: What’s the difference between a Franchisor and a Franchisee

Legal and Accounting

Anyone who wants to buy a franchise should consult with a licensed franchise attorney. The attorney will review the franchise agreement and disclosure with you. There is not a set fee, but it’s definitely worth it to choose an experienced attorney. Do your research and check out your potential attorney’s portfolio to see who they’ve worked with. Allocating funds to legal counsel saves you from spending on improper filing and even lawsuits later down the line.

It’s best to keep a record so you can budget wisely. To keep track of expenses, seek help from a qualified accountant. The accountant can set up books and records to keep track of all the fees and costs to determine how much working capital you will need and how to budget.

Working Capital

Your working capital is the amount of cash available to your business. It depends on the type of business you have, but it’s vital to ensure that you have enough capital to cover trademark fees and other factors. Your working capital should include at least two or three months to as much as 2 to 3 years of the business’s potential spending. 

In search of a reliable California Franchise Lawyer? Check out what California Franchise Attorneys can do for you and your business! 

Franchise Fee

There are a couple of fees to consider when opening up a franchise. The franchise fee can cost anywhere between $20,000 and $50,000. Some franchises might cost less than $20,000, but it depends on the type of franchise opportunities that you are looking for.

For example, mobile and home-based franchises tend to cost less. Franchise fees go towards training and don’t include the typical travel fees associated. 

In some cases, you’ll need licensing fees for the right to use the name. Aside from the franchise fee, there are other fees to look at, such as the initial investment, uncle investment, and personal finances. 

The initial investment is your starting point. Essentially, it’s the amount of money that is required to cover labor, material, and resources that you will need to launch the franchise. 

The ongoing investment is the money that is required to run the franchise on an ongoing basis. Personal finance requires the owner to have a certain amount of net worth before they are eligible to get a particular franchise.

Built out cost


man on white ladder

Once you decide on the type of franchise and location you want, it’s time for the buildout costs. The buildout costs encompass the equipment, signage, and furniture. 

There are also other start-up costs to consider, which might include 

  • architectural drawing
  • Zoning compliance
  • Contractor fee
  • Security
  • Insurance
  • Landscaping
  • And much more.

If you decided to do a home franchise, then you will not need to consider these additional costs. Since a home-based and mobile-based franchise requires fewer funds, they are more affordable than ones that require a new physical space.

Related: 10 Benefits of Owning a Restaurant Franchise 

Supplies

There are a lot of supplies that are required to open up a franchise. For example, a food franchise will need utensils, tables, cooking tools, and much more.

Other franchises might need office supplies or large amounts of other small products. It’s important to keep close track of internal business expenses to avoid overspending.

Inventories

If you’re considering a retail franchise where you are selling a particular type of product, then it’s vital to stock up on inventories.

Every franchise is different and requires a different amount of starting products. You may have to purchase between $20,000-$150,000 worth of inventories to jumpstart and to ensure the franchise strives.

Travel Expenses

Sometimes, an employee or franchisee will need to attend a training course in another state or country. This will entail travel and living expenses.

Usually, the training itself is covered by the franchise fee, but not the travel expenses. The franchisee is responsible for living and training-related travel expenses.

man standing inside airport looking at LED flight schedule bulletin board

Sometimes, training can last for a few days to over two weeks. If the franchise has a complex system of doing things, then they require months of training. With that in mind, it’s imperative to factor these costs to determine the proper budget.

Find out which restaurant franchises chose Rodney R. Hatter & Associates for legal services.

Some Low Franchise Fees to Check out

Here are a few successful and low-cost franchises to consider:

1. Cruise Planner

For example, Cruise Planner has a franchise fee of $10,995. Their initial investment is $2095-$23,367. This is an amazing travel company that is a representative of American express. You can operate your own cruise planner franchise out of your own home with a more affordable initial investment.

2. Fit4Mom

Fit4Mom has a franchise fee of $5495 to $10,495. Their initial investment is about $6205-$24,285. One of the most common issues with mothers is that they don’t have time to work out and stay healthy. Fortunately, with Fit4Mom, it provides fitness instruction to conduct stroller stride classes, body back classes, fit for baby classes, and clubs to help the mother stay fit. 

3. Chem-Dry

The Chem-Dry franchise has a fee of around $23,500, personal finance of $50,000, and an initial investment of $56,495-$162,457. Chem-Dry has been a very successful franchise business. It was founded in 1977 to provide an excellent cleaning solution for carpet and home. 

4. Jazzercise

A Jazzercise dance class practices

The Jazzercise franchise has a fee of $1250 and an initial investment of $2500-$38,000. This fitness franchise was founded in 1969 and provides a fantastic dance workout that combines modernize and hip hop dance routine and exercise to the world. 

5. The Stratus Building

The Stratus Building Solution is another excellent franchise with an initial investment of $3450-$200,000, franchise fees of $2700 $200,000, and personal finance of $10,000. 

This franchise focuses on providing an environmentally friendly solution to replenish janitorial for a clean retail shopping center, restaurants, and office needs.

6. SuperGlass Windshield repair

The SuperGlass Windshield repair has an initial investment of $18,685 to $84,205, franchise fees of $5,000 to 17,500, and personal expenses $15,000. This franchise only requires a few weeks of training, and they provide excellent services in repairing the windshield.

7. The Mosquito Squad

The Mosquito Squad has a franchise fee of $15,000 to 32,500, and an initial investment of $17,050 to $79,025. Mosquitoes are everywhere, are annoying, and can be a health hazard. Fortunately, with Mosquito Squad, they can destroy these nasty critters that are dwelling in your backyard.

They were founded in 2009 and are known as the best pest control company nationwide. They have over 200 franchises and $50 million in sales. The significant part is that the franchise fee is pretty low, and they have a third-party lender relationship to support the financial sector of the business. 

8. The Pillar To Post Home Inspector

The Pillar To Post home inspector has an initial investment of $36,350 and franchise fees of $21,900. They have more than 500 franchises in the United States and Canada and provides an excellent opportunity for the first-time franchisee. This franchise is a home inspection company that has become the preferred company for several real estate partners. 

Find out more about franchises with Rodney R. Hatter & Associates approach to franchises.

9. Property Management Inc.

black and white concrete building low-angle photography

Property Management Inc. has a franchise fee of $15,000-$45,000 and an initial investment of $21,250 to $106,800. More than 35% of US residents prefer to rent a home rather than owning one. 

Because of this, there is a significant opportunity for the proper team management industry. The property management franchise offers training, marketing solutions, and technology to ensure the success of the company. 

10. Soccer Shots

Soccer Shots have an initial investment of $41,034-$53,950 and franchise fees of $34,500. Soccer shots involve providing fitness to the pediatric population. This franchise was founded in 2005 by two professional soccer players. 

The franchise has grown nationwide, with over 350,000 kids in the program. It continues to grow at a steady rate every year.

Conclusion

Owning a franchise is a business venture with high financial potential and the opportunity for personal growth, but it can be costly. There are a lot of factors to consider when calculating the cost of opening up a franchise business. 

Some financial factors include legal and accounting fees, working capital, franchise fee, buildout cost, inventory, supplies, and travel expenses. Together, these can add up to a significant amount. This is why it’s imperative to save the proper amount of money before venturing into this journey. 

Fortunately, some franchises have low fees and initial investment. If you want something more affordable, definitely try a homebase or mobile franchise business. 

With this in mind, we hope that the information we provided can give you a clear idea of how much it costs to start a franchise. Find out more about how our attorneys at Rodney R. Hatter & Associates can be of service to you.

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How to Start a Franchise in 15 Easy Steps https://californiafranchiseattorney.com/how-to-start-a-franchise-in-15-easy-steps https://californiafranchiseattorney.com/how-to-start-a-franchise-in-15-easy-steps#respond Thu, 16 Jan 2020 21:50:17 +0000 https://californiafranchiseattorney.com/?p=416 Starting a franchise is a lucrative opportunity that many business owners consider once they begin turning a high profit. A franchise holds the potential for a higher profit margin and name recognition. If you are interested in starting a franchise, here are 15 easy steps. This is the time to be creative and to take …

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Starting a franchise is a lucrative opportunity that many business owners consider once they begin turning a high profit. A franchise holds the potential for a higher profit margin and name recognition. If you are interested in starting a franchise, here are 15 easy steps.

This is the time to be creative and to take risks. Still, it’s important to be aware of the risks involved so that you’re fully prepared. At Rodney R. Hatter & Associates, we support you through every legal stage of the franchising process. Here’s your guide to what that process entails. 

1. Do Your Research

The first step is to do your research. You want to know what type of store you want to run and how to run it. This is the best part about starting a business because it entails fantasizing, creating, and strategizing. This is where you take a piece of paper out and start brainstorming.

For example, Yummy Café has a net investment of $500,000. The worst thing you can do is start a franchise without having enough research about the budget. Seek legal counsel to discuss funding options available to you and potential expenses that you should prepare for.

2. Costs

Franchise start-up costs can vary and will generally require $50,000-$100,000 of investment. Starting up a franchise is by no means cheap. It can be very costly, especially if you don’t save for unexpected funds later down the line. For this reason, is essential to have a budget sheet that leaves ample room for unknowables. 

A businesswoman shows financial reports to her CEO

3. Operation menu

You can do this on your own or work with a professional who has a template. It’s vital to create a manual of what the franchise entails and how to operate it.

Related: 10 Benefits of Owning a Restaurant Franchise

4. Site selection

This is where you have to think about store location and what the area might be like in five or ten years. The type of planning can save you from an expensive mistake. 

During site selection, you must consider how your business would fare in the area that you’re considering. Consider the population of that area your target audience to determine if it’s a good fit. This will also help you decide on the size of your restaurant and what the building should look like.

Consider like traffic, visibility, parking, assessability, neighborhood, and lot size. All of these are significant contributing factors to whether a location will help your store or not.

5. Grant territories

Two business partners review sales leads on their computer


This is essential if you have an ordering system where the leads come through the computer or phone. It doesn’t matter what the size of the store is and it’s marketing system, a successful grant territory can help make your business grow.

5. Marketing

Marketing plays a significant role in the success of the franchise. This is where you make the necessary decisions to target your customer base and determine how to find them. The goal is to attract their attention, inform them, and entice them to come to your business.

6. Finding stores

It’s a good idea to hire a professional site finding the company to negotiate with the leasing agent and real estate agent to find your first store.

7. Law firm

It’s imperative to write the franchise and disclosure agreement. This would entail getting a franchise lawyer to finalize the contract and to help with some significant decisions. 

The primary factors that should be indicated on any statement and contract would be the length of the franchise, option to renew, whether the business is a territorial base, whether the territories be non-exclusive or exclusive, and much more.

Contact Rodney R. Hatter & Associates for more information!

8. Attract franchisee

It really depends on how involved you want to be in the business. It’s best to attract some franchisees so they can help manage the store. After all, franchisees tend to be very invested in the business, so they do a more thorough and profitable job than a regular manager. 

However, you can also manage everything on your own and obtain help along the way. At this stage, it’s best to decide on a process to approve franchisees and how will the buyers be interviewed and profiled.

Related: What’s the difference between a franchisor and franchisee?

9. Matched with Approved Franchisees

Sometimes the timing isn’t always right. That’s why it’s best to decide whether to keep the franchisees on hold and wait for the right time. You can take on a location to run the company until the perfect franchisee shows up.

10. Fit-out

Once you have the perfect franchisees in place, then you may need fit-out premises. This is where you consider whether you want to run the company or allow the franchisee to manage the store themselves. Either way, it’s vital to have control in place to meet the brand standards.

11. Training 

Franchisees need to be trained in the system. It’s vital to have an adequate training plan and determine whether an external trainer will manage the training system. The better the training system, the more confident the franchisee is at managing the store. Therefore, it’s vital to have an effective training for the business.

man and woman sitting down in front of table

12. Plan opening

A lot of operational procedures must be taken care of before the opening of the store. The business owner would have to consider equipment, staff, vehicles, stock, and local marketing. With everything in place, it’s time to open the store.

Related: Helping Entrepreneurs Buy a Franchise

13. New franchise

There are field staff and operation teams that can provide consultation and support to the new franchise owner. Even if it’s only one person holding the title of the franchisor, development manager, chief operations officer, or empty.

Conclusion

A franchise is an exciting business adventure. However, it requires a lot of research, budgeting, planning, strategizing, and networking. 

Keep in mind that location means a lot. You want to open a store at a place with a lot of traffic, people, excellent neighborhood, and entertainment. That is why some people who go into this journey blindly without doing the proper calculation and research might suffer at the end.

Some people prefer to manage everything on their own, while others would opt for franchisees to operate the entire store. Fortunately, the 15 steps listed above can help kickstart your franchise journey. 

With that in mind, we hope that you find our tips and tricks helpful to build your store into a successful franchise.

Find out more about how our attorneys at Rodney R. Hatter & Associates can be of service to you.

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What Is The Difference Between a Franchisor and Franchisee https://californiafranchiseattorney.com/what-is-the-difference-between-a-franchisor-and-franchisee https://californiafranchiseattorney.com/what-is-the-difference-between-a-franchisor-and-franchisee#respond Fri, 13 Dec 2019 23:15:36 +0000 http://californiafranchiseattorney.com/?p=404 Franchisors operate a business by selling franchise opportunities to franchisees. After signing an agreement, a franchisee gains the rights to run a franchise location with certain regulations and obligations. The franchisee pays a franchisor a one-time fee and an ongoing royalty fee.  There is a significant difference between a franchisor and franchisee. When it comes …

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Franchisors operate a business by selling franchise opportunities to franchisees. After signing an agreement, a franchisee gains the rights to run a franchise location with certain regulations and obligations. The franchisee pays a franchisor a one-time fee and an ongoing royalty fee. 

There is a significant difference between a franchisor and franchisee. When it comes to opening up this type of business, it’s vital to understand this market in-depth. At Rodney R. Hatter & Associates, our experts in franchise law cater to those in the restaurant business. Here’s our guide to franchisors and franchisees.

What is Franchising?

Franchising is a business arrangement where the owner provides the license and right to utilize other companies’ organizations, locations, trademarks, and systems. The individual or company will pay the fees to the company that owns the franchise as well as a royalty payment to use the intellectual property.

Franchisor vs. Franchisee?

barista making coffee at a starbucks franchise

The main difference between a franchisor and franchisee is that a franchisor owns the brand, trademark, and system of the company. This is the person who started the whole business, brand, and market it. They provide the terms and regulations as well as licensing that the franchisee can use. The franchisee will have to pay a certain fee and royalty to obtain the trademark and branding to operate the business.

What Does Franchisor Do?

A franchisor is an entrepreneur who has created a successful and established business. He or she has laid out all the groundwork and has proven to be a valuable asset to the company.

Trademarks

A franchisor undergoes trial and error as well as meticulous research in order to obtain the most valuable asset for their business–a registered trademark. It takes a lot of time and effort to establish a highly recognized brand name. Additionally, it requires obtaining the federal rights to that mark.

Business System

business man writing on paper

A franchisor has created a way of conducting the business to obtain reliable results. With this in mind, the franchisor is responsible for the business model that successfully deals with how customers and clients deliver products and services.

Still have questions about franchising? Read our FAQ.

Business Model

In order to become a franchisor, you must have created a business model that proves your value to the business as someone who drives profit. Because of that, consumers will go out of their way to recognize your brand and seek out your products or services.

Training and Support

Responsibilities of a franchisor includes providing training and ongoing support to a franchisee. This ensures that the franchisee can learn and succeed under the guidance of an experienced entrepreneur.

What Does a Franchisee Do?

two people drawing a business plan on a whiteboard

The franchisee’s role is to replicate the franchisor’s business model to help expand the market. This job entails a significant amount of work and investment.

Manage Franchise Location

The franchisee would have to take on the franchisor’s business model by training other employees and establishing the business in a specific location. The franchisee uses the franchisor’s existing framework for how the business works and what makes it successful. They can also control the day by day operation.

Paying the fees

The franchisee will have to pay a franchise fee to obtain the right to establish the business in a specific location. They would also have to pay a percentage of expenses for advertising costs and gross revenues.

Discover more about our approach to franchising at Rodney R. Hatter & Associates.

What Are The Advantages of Franchising for Franchisors?

The franchisor no longer maintains the responsibility of the day-to-day operations of running a business. They obtain their money through franchise fees, which the franchisee pays to gain access to the brand-name and central system. 

With that in mind, the franchisor can make a significant amount of income through licensing their business plan and brand name to independent franchisees.

What Are the Advantages of Franchising for Franchisees?

man baking pizza

There are various advantages that franchising provides for franchisees. The franchisee uses established trademarks and brandings, allowing them to bypass all the mistakes and challenges of starting a business from scratch.

 In addition to that, customers are most likely to be loyal and easy to obtain primarily if the business is well-known and has a recognizable brand.

The franchisor holds the responsibility for product research and development as well as marketing, advertising campaign, and vendor negotiation. This takes the stress off of the franchisee, who can now direct their focus on training employees and serving customers. 

The majority of franchisors offer financial support, relieving the franchisee from the duty of obtaining funds from external sources. 

Another advantage that franchising gives franchisees is the opportunity to buy a business with little to no expertise. For example, an individual may not have any medical knowledge or background, but they can now purchase a doctor’s office provided that they hire a physician to run it. The franchisor has already made sure everything is up to regulation and all the individual has to do is maintain it.

Find out which restaurant franchises chose Rodney R. Hatter & Associates for legal services.

Are There any Disadvantages For Franchisors?

It may look like the franchisor benefits more, but there are some disadvantages. For example, a franchisee who fails to meet the company standard or accidentally create a public scandal can be detrimental to the entire brand.

For example, at Starbucks, a franchisee manager was accused of racial discrimination after ordering the removal of two African-American individuals. This has led to a racial discrimination case that has caused Starbucks to shut down the establishments for a whole day to train their employees on race and discrimination, and how it’s not allowed in the company. Because of that, Starbucks has lost over $12 million in sales. 

That means training and supporting franchisees becomes a challenging business. This can distract the franchisor from their overall brand vision, which might include innovative product development, staying on top of the competitors, and improving on marketing modalities.

Plus, franchisees might eventually end the relationship with a franchise but continue to use intellectual properties that violate the terms and agreement. This can cause a significant legal headache for the franchisor. 

Because some franchisees have never worked in the business industry before, so it can be challenging for the franchisor to train them effectively. This can affect the success of the franchise as well as compliance with the industry standards.

How Do You Become a Franchisor?

Franchising your business is a proven route to more profit, but the process of becoming a franchisor is quite long and costly. The International Franchise Association stated that of the 105 companies that started selling franchises in 2008, more than 40 had not reported the sale of their first unit by the end of 2009. But if you are able to go through all the effort and legal paperwork, there’s a lot of moolah to be made. 

The first step is to evaluate your business and see if it’s ready for such a dramatic shift. Consider your concept. Most successful franchise companies offer something familiar and provenly popular — but with their own twist. It’s a concept that should also appeal to investors and prospective franchisees, meaning it should be something you can replicate. 

If this all sounds good, it’s time to look closely at your financials, gather market research, and prepare for the big changes ahead. Keep in mind it can cost about $100,000 or more to get a franchise going. 

Then it’s time to learn the legal requirements. You must register a Franchise Disclosure Document with the Federal Trade Commission, detailing your business’ audited financial statements, an operating manual for franchisees, and more. It’s also important to keep in mind that states often have their own rules for selling franchises. If you’re looking to learn more about the legal process and the laws and regulations surrounding franchises in California and beyond, contact Rodney R. Hatter & Associates today

How Do You Become a Franchisee?

Begin by looking up available franchise options in your area (or in the area you’re looking to do business in). Choose the type of franchise you also want to open or invest in, since all industries come with their own unique requirements, experience, and expertise. 


It’s important to examine the terms, conditions, and requirements for each franchise opportunity that’s caught your attention. You’ll need to find out what the franchise fee and other expenses will be upon getting involved with the franchise. You may also want to look into the company’s reputation. Check the Better Business Bureau and the American Association of Franchisees and Dealers


Then do some more research of your own. What is the demand for this type of business in the area you’re looking to open up in? What is the company’s usual profit per location? Franchises will often do research on locations as well, choosing places based on community surveys and data to pick areas where they believe the business will be successful. See if any of those locations appeal to you. 


Submit an inquiry to become a franchise owner with the company. You will receive an application, as well as a request for available funds. They’ll also send information about the opportunity and location. Fill out the application, providing proper details and proof that you have funds for the initial investment. 

If you’re selected, that leads to a process all its own. But you’ll need to be prepared for a grand opening, including marketing and inventory. 

Take Home Message

happy business owner with hands in the air

The franchisees and franchisors each face advantages and disadvantages when it comes to running a business. Even though franchisors have created and established the business with the brand and trademark, they are still responsible for ensuring that the franchisees are knowledgeable about running the business. 

They are also responsible for creating new products and services as well as marketing. Fortunately, they have limited liability and responsibility when operating the stores. They can also obtain their profit through franchise fees and royalty payments.

 Franchisees, on the other hand, do not have to go through the challenges and obstacles of starting a business. They don’t have to waste time creating products and services as well as marketing. They focus on training employees, making sure that the customers are satisfied, and that the store is running smoothly and efficiently. 

With all this in mind, it requires both the franchisor and franchisees to have the passion and drive to ensure that the business runs smoothly. Find out more about how our services at Rodney R. Hatter & Associates can be of service to you.

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10 Benefits of Owning a Restaurant Franchise https://californiafranchiseattorney.com/benefits-of-owning-a-restaurant-franchise https://californiafranchiseattorney.com/benefits-of-owning-a-restaurant-franchise#respond Fri, 13 Dec 2019 23:14:22 +0000 http://californiafranchiseattorney.com/?p=401 What do BJ’s, Olive Garden, and Applebees have in common? They are all very successful franchise restaurants that everyone can’t stop talking about. It might be a lucrative financial opportunity to own a restaurant, but expanding it into a franchise can lead to even more creative possibilities and economic profitability.  A lot of people might …

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What do BJ’s, Olive Garden, and Applebees have in common? They are all very successful franchise restaurants that everyone can’t stop talking about.

It might be a lucrative financial opportunity to own a restaurant, but expanding it into a franchise can lead to even more creative possibilities and economic profitability. 

A lot of people might be hesitant to take the risk. Little did they know that there are significant advantages to franchising a restaurant. Why franchise, you may ask? 

If you pay attention to legal requirements and regulations, franchising a restaurant can generate economic rewards. At Rodney R. Hatter & Associates, we provide top-notch legal services for those in the restaurant business. Here’s our guide to why you should convert your restaurant into a franchise.

Capital

One of the most common issues with business expansions is a lack of money. Entrepreneurs often find that their funds limit their desire to grow. Luckily, franchising is an alternative form of obtaining capital

One of the benefits of a franchise is that it allows business owners to expand without the risk of debt. Because a franchise provides all the necessary capital to operate and open a unit, it enables anyone to grow by using resources from others. 

In addition to that, business owners will not have to commit to any contracts or sign a lease; they can expand with practically no liability at all. That means the overall franchise advantages are that you can start with limited capital and liability.

Fast Growth

person sitting on chair holding iPad

A common fear amongst entrepreneurs is that someone else will beat them to a profitable market. Franchising remains one of the few ways to ensure that business owners capture a market position before competitors get to it.

Franchising not only allows business owners to have excellent financial leverage, but it helps people leverage human resources as well. Franchising allows companies to compete with larger companies to saturate the market before these companies can even respond.

Find out more about Rodney R. Hatter & Associates’ approach to franchising.

Inspirational Management

A lot of entrepreneurs want to keep an excellent manager on the team. Unfortunately, when you hire and train a new manager, you see them leave and get hired by competitors. The downside is that a hired manager may or may not have the same passion for their job as you do. 

However, franchise management is another story. It gives entrepreneurs the solution to replace an owner with a manager. After all, no one is more inspired and motivated to run the business than someone who is invested in the success of the operation. 

Basically, the franchisee acts as the owner/manager, and their savings funnel into the business. Therefore, compensation will be in the form of a significant profit. Since the franchisee is incredibly invested in this business, it will be hard for them as a manager to leave. Plus, the manager or franchisee will continue to upgrade their knowledge about the market to help run it more smoothly and effectively.

When it comes to franchise management, you know that they will take the business very seriously. That means they will ensure that the employees are qualified and that the location is kept clean. Because the stakes are higher for franchisees, the franchise manager will always find opportunities to improve the business. 

A franchise manager will keep an eye on the expenses such as staffing, labor costs, and item expenses. In addition to that, there are studies that prove that the franchise manager outperforms regular managers when it comes to generating revenues.

Leverage staff

kitchen staff working inside a restaurant

Since the franchisee will take on the majority of the responsibilities, then franchisors can leverage the effort by decreasing the number of staff that is required to run the business.

Easy supervision

The franchisor is not responsible for managing the employees. That means if a crewmember is sick in the middle of the night, they don’t call the franchisor or the business owner; they called the franchisee to let them know. 

The franchisee is responsible for finding a replacement or covering a shift. Another thing to keep in mind is that if the franchisee decided to pay the wrong salary that does not match the marketplace, employed there for friends and family, or spend unnecessary amounts on purchases, it would not affect your profit. When you get rid of these responsibilities, franchising becomes direct access to profit and success.

Training and Support

Many franchises offer training and support, not just for the staff, but for the franchisee. Domino’s is actually known for encouraging women and minorities to apply for a lower franchise fee and then offering training programs to get them ready for the challenge. 

This is extremely valuable, especially to investors that are new to operating a franchise. There’s a lot to learn after buying into a franchise and you’ll need to invest not just money, but your own time. Getting prepared for this new opportunity is extremely important, so it’s definitely a benefit that many franchisors offer this training and insight into how to become successful. That support system is invaluable. 

Increase value

When you combine the results of increased profit, fast growth, and highly organized business, it does make sense that becoming a franchisor gives your business the potential to reach a higher value. When it comes time to sell your business, being a successful franchisor indicates scalable growth and makes your company more desirable to potential buyers.

Have more questions about franchising? Read our FAQ.

Excellent Profit

The combination of a unique staff leverage system and efficient supervision modality is the reason why the franchise organization is highly profitable. This is mainly because the franchisor can depend on franchisees to partake in multiple functions of the business, such as lease negotiation, local marketing, site selection, hiring, training, payroll, accounting, human resources, and much more. 

Because of this, the franchisor’s organization has already leverage off a system that is ready to support a company operation. Therefore, it’s no doubt that the franchise organization will experience an elevation in profit.

Lower Inventory Costs

Here’s another great way franchisees save money. When it comes to inventory, things can add up. But sometimes this isn’t the case with franchises, since you can take advantage of the franchise group’s collective buying power. This means lower inventory prices. 

You’ll also have added bargaining power with vendors due to the name and recognition. Vendors know you’ll be coming back for more and so will other locations under the same name, so they’ll definitely want to land the sale. 

Lower risk

chef cooking in a restaurant

Since the franchisee has all the responsibility for the investment in the operation, the franchisor tends to have a lower chance of liabilities. Because of the various duties that the franchisee has to partake in, they are the ones who are responsible for any obligations. 

For example, a franchisor is not liable for any discrimination or regulation breach that occurs, and it is the franchisee who has to delegate a solution.

See which restaurant franchises chose Rodney R. Hatter & Associates for legal services.

Getting into the second and third market

Since the franchisees are the one who takes all the responsibility for daily operations, the franchisor has a chance to look into other markets that could contribute to a higher profit margin. 

You should consider a market in which the franchisee has a high probability of success. However, if you prefer to develop a corporate unit along with franchising, you may have limited capital to do so. The franchisees, on the other hand, can open and operate on secondary and tertiary markets that are not high on your priority list.

Loyal Customers

The hardest part about opening up a business is finding your customers. Fortunately, with franchising a business like a restaurant, you get to bypass all the obstacles that go into branding and marketing to attract new customers. 

Investing in a franchise provides you with a loyal customer base so you can focus on expanding and growing. When you purchase and establish the brand, it can accelerate the growth and profitability by bringing in prospective employees and customers from the first day.

Good Reputation

Going off of that point, restaurant franchises are usually popular in the area. Many times, that also means that the franchise owner is well-respected and recognized, giving you immediate notoriety through your involvement with the franchise. You can even become a leader in your community. 

A lot of franchise owners will get involved with special town or city events, fundraising efforts, and other activities that help you make an impact on the surrounding neighborhoods. Some of the most charitable restaurant franchises are:

Little Caesers: Veteran program 

This program provides military vets with a $5,000 franchise fee reduction, financing benefits and even $5,000 credit on equipment. Disabled veterans are eligible for even more benefits, including a waiver of the franchise fee. 

The Human Bean: Farm Friendly Direct

This coffee franchise has been running their Farm Friendly Direct program since 2002. Franchisors agree to above-market prices from farmers who operate with sustainable practices. The Human Bean then donates funds and supplies to schools in India and Costa Rica and supports El Ssalvador’s tree restoration movement, among other countries’ causes.

Jamba Juice: Rewards for Charity

Jamba Juice’s Jamba School Appreciation Program encourages PTA members to buy from Jamba Juice. The proceeds go to the local and national PTA. 

Taco Bell: The Taco Bell Foundation

Taco Bell has participated in programs like the United Nations World Food Program, providing over 90 million meals to families in need. They also provide grants to organizations that focus on community and hunger relief. Taco Bell also has the Taco Bell Foundation, which aims to lower teenage drop-out rates by offering youth support services.

McDonald’s: Ronald McDonald House Charity

For over 36 years, The Ronald McDonald House Charity has been running various charity programs. Their most popular charities include the Ronald McDonald House, which offers housing to displaced families, the Ronald McDonald Family Room, which offers rest to family members visiting someone in the ICU, and Ronald McDonald Care Mobile, which provides health care to places with uneasy access. 

Final Note

happy cashier charging customer for a coffee

Like any restaurant business, there are advantages and disadvantages of franchising. One of the key advantages of a franchise is that you have limited liability and higher profit margins. This is mainly because when you hire a franchisee manager, they are often more invested in your venture. As a result, they tend to stick around and generate more profit than a regular manager.

Plus, they play a significant role in managing the restaurant. If anything happens, you are not liable for the risk. Instead, your job as a franchisor is to focus on incorporating new marketplace ideas to further expand and increase profit margin.

There are also other franchising advantages such as increased access to a loyal customer base, higher value, staff leveraging, increase speed of growth, motivate management, and much more. 


With all this in mind, it’s clear that owning a franchise can help you bring your business to the next level and allow you to reap more benefits. If you’re thinking about starting a franchise, you want the law to be on your side. Find out more about our legal services at Rodney R. Hatter & Associates and how we can assist you with the legal side of owning a restaurant franchise.

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