Business-Minded Legal Solutions

Common Questions Asked By Franchisees About Franchising

Purchasing a franchise of a business can be an excellent opportunity. It can also come with complicating factors. Our lawyers at Stephenson Fournier provide insight and guidance to potential franchisees in numerous industries. Below are some questions that are frequently asked by franchisees and answers giving a general understanding of the issues. For more information or to discuss other franchise issues with a member of our experienced legal team, call our office at 713-629-9494 or send us an email.

How do I sell my franchise?

Before you can sell your franchise, you must find a qualified buyer who has sufficient funds or can obtain the financing to purchase the franchise and to satisfy the franchisor’s requirements. You will need to negotiate the terms of the transaction and agree on the provisions of a purchase and sale agreement and other documents to be signed. There are transfer fees and other fees that must be paid when selling a franchise; these are typically stated in your franchise agreement. You also must obtain your franchisor’s approval of the buyer before any transaction can take place. Once these things are in place, disclosure documents and other legal sale documents must be signed by both parties, and the deal can be closed.

It may be in your best interest to establish an exit or sale strategy at the time you purchase the franchise. This way, you have a plan already set out and the details collected in one place, making the sale process easier on you as an owner.

Should I sell to a new or existing franchisee?

The ideal buyer for each franchise is dependent on the situation. Many people looking to buy a franchise are eager to get into business and are excellent buyers. However, selling to an existing franchisee can also be beneficial, as they are already familiar with the franchise system and likely meet the requirements set out by the parent company. Sometimes the decision comes down to the person offering the highest price, but there are many nuances to a sale. Getting to know the buyer and negotiating particular sale and payment terms will help you determine if a potential buyer is correct for your transaction.

How does owning a franchise differ from owning an independent business?

By purchasing a franchise, you are entering into an already established business that typically has had some success. The franchisor often provides a great deal of support and training, and frequently you do not need business ownership experience to own a franchise. However, you are limited in your ability to be creative with the business, as the franchise agreement sets out rules and guidelines that must be followed by every franchisee of the business. You must pay fees that independent businesses do not pay, and negative publicity about the franchisor or other franchise outlets may affect your franchise, even if it has nothing to do with your location.

Starting up an independent business may require more involvement from you as the owner, as you would need to create and implement employee handbooks, safety protocols, and company policies and standards. You need to develop your own network of resources when things get tough or you need assistance. However, with your own business, you are able to run it how you see fit, can be as creative as you want with marketing and sales, and are free of franchise fees that eat into a franchisee’s bottom line.

How do I buy a franchise?

Purchasing a franchise is not a decision that should be made lightly. It is smart to speak with a knowledgeable franchise lawyer at the beginning or any stage of the process of buying a franchise. They can aid your review of Franchise Disclosure Documents, help negotiate your franchise agreement, and provide you with information to help you understand if this is the right step for you to take.

Finding a franchise opportunity typically comes through research. Finding a franchised business that is a good fit for your skills and interests is essential. A franchisor will provide you with a Franchise Disclosure Document (an FDD) which you should read carefully. Once you have found a franchise, be prepared to share your personal financial information and background with the franchisor to qualify for the purchase.