If things have not gone well then the franchisee will become disenchanted with the franchisor. This could result for several reasons. For example, the franchisor might not have kept up the infrastructure to support all of the franchisees. The franchisor might have diverted some of their resources in the recruitment of new franchisees. Or, the franchisor might no longer contact either by phone or in person the franchisee as it once did because of the feeling that this franchisee no longer requires that type of contact.
All of this could leave the franchisee feeling alone and disenchanted. Phase Four : The End or a New Beginning The final phase of the franchisor-franchisee relationship will go in one of two directions.
On one hand, the franchisee may be disenchanted with the franchisor. At this point the franchisee may seek to terminate his franchise agreement. The franchisee may have already decided that he will not renew his franchise because he feels there is a lack of support from the franchisor.
Additionally, his business could be declining. As a result of the franchisor not maintaining the growth of his infrastructure, the franchisee may find that his business is falling further and further behind the competition. As a result, the franchisee becomes less and less concerned with adhering to its franchise agreement and operations manual.
On the other hand, the franchisee may have decided to renew his franchise agreement and continue with the relationship. The reason for this is that the franchisor has not only continued to give plenty of support to the franchisee but has continually updated its support services to meet and exceed any competitive challenges. As a result the franchisee has been provided with, on a regular basis, new products and services, marketing and advertising strategies, and current research and development concepts.
Therefore, the franchisee is very happy with his relationship with the franchisor and wants to continue with it. In other words, the situation has truly been a winning one. Traits of a Good Relationship A prospective franchisee should look for certain traits when inspecting a franchise system.
The more of these traits the better his chances for success, if he chooses that franchisor. One of the first things the prospective franchisee should do in his investigation of the traits the prospective franchisor has is to talk to its current franchisees.
The franchisees of the franchise system the prospect is investigating are a wealth of information. In-depth discussions with several of these franchisees can go a long way in helping a prospective franchisee to decide whether to purchase a franchise in that franchise system. When a prospective franchisee speaks to current franchisees, he needs to determine which positive perceptions he has of the franchisor.
After determining which perceptions the franchisees have, the prospective franchisee then needs to investigate the franchisor. The above 10 traits are important. If a franchisor possesses these traits, it should be very successful. Talk to Me Communication is the main ingredient in the successful franchisor-franchisee relationship. In other words, does the franchisor comprehend the concepts and ideas it is trying to convey to its franchisees prior to communicating?
If the answers the prospective franchisee receives to the above questions are positive, then he knows that the franchisor has good communications with franchisees. The value of good communications cannot be underestimated.
Additionally, S-Corporations are easier to administer. But, they do not qualify for the tax-free employee benefits that C-corporations do. Another benefit of S-corporations is that their dividends paid to their owners are exempt from social security taxation assuming that the S-corporation owners are paid a reasonable salary.
General partnerships and limited partnerships are also pass-through entities. They do not pay taxes at the partnership level. Instead the income and losses of the business are passed through to the partners.
LLCs can generally choose to be taxed as a corporation meaning a C-corporation or a partnership meaning as a pass-through entity. Most LLCs choose to be taxed as a partnership in order to avoid the double-taxation problem. Corporations are relatively expensive to administer. Additionally, there are fairly rigid rules for maintaining corporate formalities, such as requirements for periodic board meetings, shareholder meetings, corporate minutes, records of shareholders, etc.
The rules for LLCs, on the other hand, are much more relaxed. LLCs are much easier to administer than corporations. There are many factors that can affect your choice of entity.
Of course, not all factors are of the same level of importance, and not all factors are important to all people. Here is a list of other factors that may be significant in your decision on forming an entity:. In most states, LLCs are cheap, they provide the best asset protection, and they have the flexibility to be taxed as a partnership or a corporation.
But, you should check with your lawyer and CPA to find out what is best for your particular situation. The laws relating to the organization and administration of entities vary from state to state.
Some states, like Delaware and Nevada, have a reputation for being business-friendly, because of state laws that protect the privacy of entity ownership information, low or no state taxes, etc. But, unless your business will be located in Delaware or Nevada, there will be little reason for you to form an entity in either of those states.
Usually, the best choice is to form the entity in your own state. If you choose to form an entity and you have determined which type of entity to form, you will need to select a name for your entity.
There are restrictions about what name you can use. Regardless of whether you will operate the Franchised Business as a sole proprietorship, corporation, partnership or LLC, you must file an assumed name certificate with the appropriate governmental office. The purpose of this filing is so that the general public will be informed of the registered agent for a business and where official contact with the business can be made.
Each jurisdiction uses a different form. Generally, the required information includes, the name of the business, the street address of the business, the name of the business owner s , the type of business to be conducted, and the expected period of operation. The expected period of operation should correspond to the initial term of the Franchise Agreement.
Usually, each owner must sign the certificate and all signatures must be notarized. In some jurisdictions, you will need to place a fictitious name notice in a local newspaper for a certain amount of time. Establishment of a Business Form. Back to Sample Table of Contents Business Structure Before you begin operating the Franchised Business, you will probably want to form an entity to serve as the operator. However, for most franchisees who choose to form an entity, the best choice will usually be between: a C-corporation; or an S-corporation; or a limited liability company LLC.
Development of multiple units differs from how a single-unit franchisee may acquire additional locations; in addition to signing a franchise agreement, multi-unit franchisees sign a development agreement at the commencement of the relationship. The area development agreement gives the right and the obligation to open multiple locations, and obligates the franchisor to allow them to complete a development schedule. Each franchise established by a multi-unit developer will have its own separate franchise agreement, as the development agreement is not a franchise agreement.
If a multi-unit developer fails to meet their development schedule, the franchisor typically has the right to cancel the development agreement and keep the area development fee that is paid up front to the franchisor. Most often the multi-unit developer will still be allowed to continue to operate as a franchisee the locations that they have established, as long as they are in compliance with those individual unit agreements. In most multi-unit development agreements the developer will pay the franchisor a fee for the rights granted in the development agreement; that fee is usually applied on a pro-rata basis to each franchise fee that comes due.
This type of relationship can have significant benefits for both the franchisor and the multi-unit franchisee:. A master franchise relationship can look very similar to a multi-unit development structure but has one significant difference. Under a master franchise agreement, in addition to having the right and obligation to open and operate a number of locations in a defined area, the master franchisee also has the right and the obligation to offer and sell franchises to other people looking to become franchisees of the system.
The master franchisee becomes the franchisor in their market area. The master franchisee will generally be required to own and operate at least one or two locations themselves but may be allowed to sell those units to new franchisees at some point in time if they choose to do so. When a master franchisee signs the master franchise agreement, they generally pay a master franchise fee to the franchisor and then collect a unit franchise fee from each franchise recruited into their system.
The royalty they collect and the unit franchise fees they charge are typically shared with the franchisor; the percentage may vary. Of all the types of franchising relationships, the master franchise relationship is the most complex, because of the agreement, and the terms of the agreement that generally have some shared responsibilities in support of the unit franchisee.
Each master franchisee will be required to prepare their own Franchise Disclosure Document, and if they are in a state that requires registration or filing, meet those requirements as well. An area representative relationship looks very much like a master franchise relationship, with one major distinction. The area representative does not enter into any agreement with the unit franchisees.
The unit franchisees sign a franchise agreement with the franchisor directly. The area representative is, in reality, only a commissioned franchise salesperson and also the commissioned field support person for the franchisor in a geographic area. The area representative pays the franchisor a fee to enter into the relationship and shares with the franchisor the franchise fees and royalties paid by the franchisees in their territory.
The area representative provides the franchisees in their territory some opening and continuing support and, like the master franchise, some of that support provided may be shared with the franchisor.
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