What Do Most Franchise Businesses Have in Common?
UPDATED: February 7, 2020
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There are many commonalities between one franchise business and another. One basic commonality is the method by which the franchise owners and buyers do business. The owner of the franchise business, or the franchisor, sells the trademark rights to the franchisee, who opens up a replica of the owner’s company. The business is based upon a common method or approach that relies on a combination of techniques or products plus the frranchiser's special trademark, service mark, trade name, logotype, advertising, or other symbol that designates the franchiser.
Franchise Business Commonalities
Another commonality between all franchises is the Franchise Disclosure Document. The Federal Trade Commission (FTC) requires that the owner of a franchise business provide a disclosure document to a franchisee at least 14 days before finalizing the deal or signing the contract. As required by the FTC, each Franchise Disclosure Document will include the same basic categories of information.
These categories include license and permit requirements, the business backgrounds of the owner or management team, a list of other current or former franchises, any bankruptcy or litigation history the franchise has been subject to, all franchise fees, and all trademark or copyright information. The franchisor will most likely require the franchisee to buy certain types of insurance for the franchise as well, which also must be listed in the Franchise Disclosure Document.
Commonalities Related to Fees
The specific franchise fees and royalties listed in the Financial Disclosure Document will also have some commonalities. In all franchise sales, the franchisee will have to make several types of payments, some upfront and some ongoing. In virtually every franchise business deal, the franchisee will have to pay the franchisor for the right to use the franchisor’s trademark, as well as the cost of training and other expenses. These expenses may be included in a one-time, upfront payment. The franchisor will also collect ongoing royalties from the franchisee as part of the business deal.
While franchises share a similar business structure and basic paperwork, there are also many differences between individual franchise business models. For more information, or for guidance on investing in a franchise business, contact an experienced franchise attorney.