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What to consider before buying a franchise

Opening a franchise, whether for a restaurant, hotel, convenience store, cleaning company or another field, is not a decision to make lightly.

November 11, 2012|By Scott Wilson, Los Angeles Times
  • A Subway outlet sits across the street from a McDonald's restaurant last year in Chicago. Subway has surpassed McDonalds as the world's largest restaurant chain.
A Subway outlet sits across the street from a McDonald's restaurant… (Scott Olson, Getty Images )

If you're thinking of going into business for yourself, one option is to buy a franchise in a national or regional chain. Franchises are available for restaurants, hotels, convenience stores, cleaning companies and many other fields. It's not a decision to make lightly. Some things to consider:

•Benefits: As a franchisee, the parent company will typically provide you with training, assistance in establishing your business, and help with marketing and advertising. Most franchisers will offer ongoing advice and support. You may also get the benefit of having an established brand name and using a business model that has been tried and tested.

•Costs: You will have to pay a franchise fee at the start, which could be from several thousand dollars to the hundreds of thousands of dollars, and may be nonrefundable. You will have to pay the parent company royalties based on your revenue. You may also have to pay into an advertising fund.

•Control: As a franchisee, you will not have total control over your business. The franchiser may have the right to approve the site you select, control the look and design of your outlet, restrict the goods or services you sell, choose employee uniforms and designate store hours. You may also be limited in the territory in which you can operate.

•Research: You can find franchise opportunities by searching online, visiting franchising trade shows or using middlemen, called franchise brokers. Be wary of any promises about expected income; ask for written documentation. "Visit franchised outlets in your area and talk to the owners about their experience with particular franchisors," says the Bureau of Consumer Protection.

•Disclosures: Before investing in any franchise, view the franchiser's disclosure document, which spells out all fees, requirements and contract termination rules and provides information on the company's financial status. Under federal law, the parent company must give you that document at least 14 days before you pay any money or sign a contract.

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