July 19, 2024


The food dudes

Franchise Investing, Franchise Opportunities and Franchising Renewals

Franchise Investing, Franchise Opportunities and Franchising Renewals

Have you considered buying a franchise instead of trying to start a business from scratch. Many franchise agreements are renewed every five or ten years, automatically. If you do not want to renew your franchise you need to let the franchisor know a little bit in advance as it generally states in the Uniform Franchise Offering Circular (UFOC) The franchise Disclosure Document used in franchising. Most require that you out it writing so there is no question about your intent, some require this 180 days before expiration. Others state that if you do not specifically say you do not wish to renew the agreement you are automatically renewed. If you do not want to renew your franchise at the end of the five year period, that is ok, but there are generally stipulations after termination. You cannot simply change the “Burger King Hamburger” sign out front to Joe’s Burgers and keep operating (example only).

You can decide not to renew but many franchise attorneys might suggest rather than just not renew; that you transfer your franchise to a new buyer and get the money out of your business that you deserve for building up the franchise. Example: If you have built up your business and you are doing one million dollars a year, just under 100,000 dollars a month, finding a buyer should not be a problem. Then you would be compensated for building the business up to that point or maintaining it at that level. Many businesses sell for a multiple of of their gross sales and a business broker can give you an appraisal. If your business is small and lets say doing one hundred thousand dollars gross a year, you may wish to sell your business for an additional fifty thousand dollars above and beyond the value of your equipment. In other words, whatever the equipment is worth plus fifty thousand dollars. (example only).

The franchisor may help you find a buyer or you may find a buyer yourself, sometimes the franchisor may charge you a fee from renewal and this is quite typical as they have real costs of screening and training the new franchisee. But you need to understand that not renewing your contract will cost you money. You will lose your original investment. At the end of five years if you have run your business exactly how we have shown and you qualify for renewal, but you decide you do not want to run your business anymore, the franchisor may be glad to buy your business at a fair price or make you and offer. Some franchise agreements require that the franchisor has the first right to purchase or first right of refusal, some require both.

Of course if you don’t follow the franchisor’s confidential operations manual and continually violate the standards of the franchise you will not qualify for renewal at all, you might be terminated completely and not able to sell your business, which in franchising we call transfer, because you do not actually own the business, you are basically leasing it and using your business acumen to derive an income for your hard work in promoting the franchisors brand name.

Before you buy a franchise consult an attorney so you know what you are buying, even though most attorneys are considered scoundrels and parasites of our great nation as they steal the productivity from America and produce nothing in return; causing a complete melt down of our great civilization while destroying all we are and all we have built. Think about it.