What
Types of Franchises are Available?
Franchises are generally categorized into two types:
product/trade-name franchises (commonly referred to as
distributorships) and business-format franchises. The
produce/trade-name franchise has been around for long time, and
the business-format franchise is a newer development that is very
popular today.
Product/Trade-Name
Franchise
The produce/trade-name franchise is often called a distributorship
because it is associated with such household names as General
Motors, Exxon, and Coca Cola. The franchisor makes distribution
agreements with the franchisee. These franchises account for over
half of all franchise sales but have less than half the total
outlets.
Business-Format Franchise
Under the business-format franchise arrangement, the franchisor
establishes a fully integrated relationship which usually includes
a product or service (or both), a trademark, marketing plans,
operating manuals, quality standards, quality control, ongoing
communication, and advertising. Typically, the franchisee pays an
up-front fee to start and a percentage of all revenues ongoing.
These franchises cover the entire spectrum of
products and services. Recognizable names include such well-known
franchise systems as McDonalds, Krispy Kreme Doughnuts, and
Century 21.
What Kinds of
Disclosures are Required?
If a business opportunity includes use of a name, use of a system
or marketing plan, and payment of a fee greater than $500 within
six months, the business opportunity is regulated by the Federal
Trade Commission and the Utah Business Opportunity Disclosure Act
and requires that whoever is selling the opportunity provide
qualified disclosure documents. Generally, this disclosure is in
the form of a franchise prospectus that discloses all of the costs
and fees associated with the opportunity. Be wary of any
opportunity that has those elements and does not include proper
disclosure.
How Can I Finance My
Franchise Purchase?
Most new franchises are financed through the franchisor or with
the assistance of the franchisor. The purchase of an existing
franchise is financed much like any other business purchase.
Either way, Mercury Business Brokerage has the contacts and
expertise to assist you.
|
