Are you a small business owner? Have you thought about expanding your business through franchising? Well, then, I’m sure you’ve heard rumors about what it takes financially, (and perhaps physically, emotionally, mentally, spiritually, etc.) to start selling your business model to franchisees. TFF’ franchise lawyers serve as legal partner to startup franchise systems (including 3natives.com) throughout Florida. We provide you, a prospective franchisor – whether you are a small business owner, a startup founder, an entrepreneur, or an established company looking for an additional revenue stream – with the 5 biggest myths about franchising:
Myth 1: Franchising is Too Expensive!
Big law firms and well-known franchise consultancies do charge an arm and a leg (and perhaps a first born) to prepare a Franchise Disclosure Document (FDD) and a Franchise Agreement. We have seen some big franchise companies and big law firms come to us with sub-par documents after being charged six-figures to develop a franchise system. This is insane. On top of needing a mortgage to franchise your business, these folks will prepare an FDD for any business owner that asks for it regardless of the state of affairs of the business. However, responsible boutique franchise law firms should be able to prepare customized FDDs and franchise agreements for you based on a free analysis of your business and proposed franchise offering. TFF conducts these analyses for prospective franchisors free of charge and offers flat fee pricing model for FDDs, franchise agreements, and registration in Florida and other states that require franchise registrations. The fixed fee also includes a trademark registration and corporate formation if needed. To get a free consultation and a quote, just call us or shoot us an email straight from our website.
Myth 2: We Don’t Need to be a Franchise to Expand Our Business
Do you want to know what can be “expensive?” Hiring a lawyer without franchise experience who says you can “license” your business or offer some other form of expansion instead of franchising. That situation creates what we call in our industry an “Accidental Franchise” or a “Disguised Franchise.” If you are found guilty of illegally selling franchises without the proper disclosures in an FDD in violation of the FTC Amended Franchise Rule, you are subjecting your business to civil penalties under such laws as the Florida Deceptive and Unfair Trade Practices Act and you, as the business owner, could face criminal sanctions under state law. Please read more about the “Accidental Franchise” on our blog post entitled “The Accidental Franchise: A Must Read for Lawyers and Business Owners.” Remember, if it walks like a duck and quacks like a duck, it’s a duck.
Myth 3: There’s Too Much Red Tape
If by “red tape” you mean compliance with state and federal franchise laws, then “yes” there is some additional paperwork and filings that need to be made. But, generally speaking, there is not a whole lot of “red tape” especially when you have experienced franchise counsel as part of your franchise team. In Florida, for example, the registration of franchises is rather simple and requires a $100 fee and an application to the Florida Department of Agriculture and Consumer Services (yes, Florida combines consumer services with agriculture in the same department). Various “registration states” have more hoops to jump through including, for example, New York, Virginia and Hawaii, but those waters can be easily navigated by experienced franchise counsel. Once the legally compliant FDD is drafted, that document can be used nationwide to sell franchises. The FDD requires annual updates which should be done by experienced franchise counsel. For example, TFF recently registered its established franchisor client in Hawaii. So, maybe there is a little bit more “red tape” for a franchise system than the alternative. But, what is the alternative? Remember, by avoiding the franchise laws due to “red tape”, your agreements can be voided and you could be found civilly or criminally liable for selling “Accidental Franchises.”
Myth 4: You Need to be a Restaurant like Subway or McDonald’s to Franchise
Incorrect! Businesses in all industries are getting into franchising. Look at the Top 50 franchise system list for 2016 from Entrepreneur and you’ll see businesses in janitorial services, education, tax services, massage, hair salons, et cetera et cetera. TFF represents and has launched startup franchisors in the pet industry, pressed juices, permitting services, medical services, health and wellness, educational services, vitamins, and more. Yes, we also represent quick service restaurant franchisors and other franchisors in the restaurant business, but food is not a requirement of franchising.
Myth 5: You Need to Be in Business for Years Before Thinking about Franchising
Clearly, a history of conducting business and developing a brand will benefit your ability to sell franchises to franchisees. However, a good idea is a good idea. If you are a startup company with solid financials over 6 to 9 months of conducting business and have found success in branding your business, then you could have a successful franchise system. At the end of the day, we recommend that a careful business analysis be performed by a franchise attorney and/or franchise business expert that can make a determination of whether a startup business should be launched into a franchise system either in its present form or in a form that might be better suited to be “franchised.”
Are there any myths about franchising you have heard that we have missed? Call us to discuss. We pick up our phones and provide our franchise and business clients with our cell phones.
