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Many states are attempting to level the playing field in franchising by creating statutes known as "fair franchising" laws. These bills and enacted laws are created to soften the harsh remedies often found in franchise agreements. They are created to make franchising less one sided and thereby fair to both franchisees and franchisors.
In essence, these fair franchising laws typically override the franchisor's franchise agreement and require that the franchisor provide greater notice and opportunity to remedy a default by a franchisee located in that state; require that the franchisor renew a franchise that would likely have terminated but for the state's fair franchising law; or require a greater time period for notice to a franchisee prior to terminating a franchise. Read more »
What is the history of franchising in the United States? What role did fast food and sewing machines play in creating the demand for franchises in the United States?
Franchising actually began in the United States in the mid-1800's with Albert Singer and the Singer sewing machine. Albert Singer used franchising as a means of distributing his sewing machines throughout the United States. He is credited as the first franchisor in the United States and the first to develop a franchise contract.
Franchising grew more fashionable in the mid-1900's when a new type of franchise popped up in the form of the retail and fast food chains. Both the move to the suburbs at the time and the advent of the baby boom created the need for fast food and retail chains to develop in more remote areas outside of cities, thus creating the need for franchising these types of businesses. Read more »
Existing and former franchisees of a system can be a valuable resource and an important part of the due diligence or validation for anyone looking to buy a franchise. Before you sign a franchise agreement or pay any monies for a franchise, make sure you have spoken to as many of the existing and former franchisees as you can and ask them what they like and dislike about the support and training they receive. Both existing and former franchisees are listed as Exhibits to Item 20 of the Franchise Disclosure Document (FDD). If there are 500 franchisees in a system you are considering, I would speak to at least 50 of them around the country and all of the former franchisees you can reach. Read more »
Unless you already have a buyer, such as a fellow franchisee, a key manager, or a family member, then you should use a business broker. And even if you have a buyer, it may be helpful to still hire a business broker to expand the universe of those interested in your business and to confirm that you are getting a fair deal. The law of supply and demand applies to businesses as well. If you have more buyers (higher demand) you should be able to command a higher asking price. Brokers have specialized knowledge and experience dealing with multiple transactions a year, where you may only sell a business once in your life or only a handful of times.
In addition, don’t underestimate the value that a broker provides by acting as a third party intermediary. They will screen unqualified buyers and help the serious buyers understand your business better. Read more »
The following is a list of the top ten commercial lease clauses about which a tenant should be most concerned. Here is my top 10 list for the most negotiated clauses:
1) Rent - When does it commence; what is the base rent; will there be percentage rent.
2) CAM - Stands for "Common Area Maintenance Charges" - this is the additional rent that includes all of the costs that the Landlord expends for maintaining the shopping center or office building. The costs are apportioned to each tenant on a pro rata basis based on square footage (see my prior blog post on Common Area Maintenance charges). Consider a cap on charges and exclusions from items included in CAM charges.
3) Personal Guaranty - is a personal guaranty required, if so, can it be limited in time or amount.
4) Term - When does the lease commence - does it commence when the lease is signed, when the keys are turned over to the tenant, when the tenant opens for business or some time after that. Read more »