The Other Side of Franchising

Franchisors sell their businesses with the concept that you are in business for yourself but not by yourself. Sounds great right? Well I bought it. In 2005, I bought a decorating franchise. It was an exciting moment. I was my own boss at least that was what I believed. I found myself so frustrated. The franchisor required the franchisees to call in every week giving details of their progress. They did not allow the franchisees to use inexpensive outside suppliers. I was forced to purchase goods even if it was not used at the time of purchase. It was required that $25,000 be made within the first three months of operation. This made me extremely stressed out by the franchisor.

Many times, I felt as if I failed, I was incompetent. Efforts were made to promote my business and please the franchisor, but at the end of the day, they were not pleased. At one point, I tried to hire an independent contractor, but the franchisor informed me that I could not hire anyone. The reason they gave for their decision was that I only purchased one unit and I would be violating my contract with them.

The franchisor decided to buy back my franchise. They informed me that this would be in my best interest since it was going to get more difficult for me. I sold my unit to the franchisor at a loss. The non-competitive clause was enforced. I was back to square one with no idea what will be my next move.

I wrote this article not to discourage you from buying a franchise but to give another prospective of what can happen. I have a friend that owns a Golden Crust franchise, and he is very happy with his decision. If you are going to purchase a franchises do your research diligently.

-Speak with other franchisee (not the ones recommended by the franchisor)

-Request a copy of UFCO when you request information about the franchise.

-Hire an Attorney to review your documents.

-Call previous franchise owners; ask them why they no longer own the franchise.

-Franchises have rules make sure you can adhere to them.

-If you have creative ideas that you want to implement, I suggest you go into your own business. If you want to use someone else’s model, then a franchise is for you.

Mobile Based Franchising and Liability Insurance Issues in Franchising Agreements

Mobile based franchising companies must consider the potential eventuality of being sued or named in a lawsuit, which is directed at a franchisee due to a traffic accident while conducting the franchise outlets business operations. In places like New York, California, Washington D.C. the number of lawsuits from traffic accidents are astounding. Without protection and separation from the franchise outlets, a franchisor might unnecessarily open themselves up for liability issues of one of their franchisees.

It is for this reason that in my franchising agreements are decided to spend special attention to the clauses regarding insurance, limits of liability and operations of vehicles in the franchise business. Below is a copy of the clause that I inserted into our franchise agreements;

3.21 Insurance

3.21.1 Limits of Liability

Prior to the commencement of any operations under this Agreement, Franchisee must maintain, at their sole expense, a business liability, comprehensive and completed operations insurance policy or policies in accordance with standards and specifications set forth in the Confidential Operations Manual, which must include at a minimum the following coverage:

(a) Comprehensive general liability insurance, in the amount of $100,000 bodily

injury per occurrence and $50,000 property damage per occurrence;

(b) Vehicle insurance in the amount of $100,000 single limit, including

comprehensive and collision;

(c) Worker’s Compensation and Employer’s liability insurance (if Franchisee

has employees); and

(d) Equipment insurance for the value of all The Car Wash Guys equipment.

If Franchisee finances the equipment, the lending institution may also require Franchisee to maintain fire/theft/comprehensive insurance for the value of that equipment.

3.21.2 Additional Insured

Franchisor shall be named as an additional insured under all insurance policies, as its interests may appear, and contain a waiver by the carrier of all subrogation rights against Franchisor. Maintenance of insurance under this paragraph shall not relieve Franchisee of liability under the default provisions set forth in this Agreement.

3.21.3 Other Requirements

Franchisor may, at its discretion, change the required coverage and the limits of liability for Franchisee’s insurance during the term of this Agreement. Franchsior may require Franchisee to increase the minimum limits of coverage to keep pace with regular business practice and prudent insurance custom. In the event Franchisor does this, Franchisee may be paying a higher or lower premium.

The insurance will not be limited in any way because of any insurance Franchsior maintains. The insurance will not be subject to cancellation except upon twenty (20) days’ written notice to Franchsior. Certificates of Franchise’s insurance policies will be kept on deposit with Franchisor. Maintenance of the required insurance will not diminish Franchisees liability to Franchisor under the indemnities contained in this Agreement.

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If you run or operate the mobile franchise company you must pay attention to the insurance issues and make sure you or additionally insured to prevent risks to your financial health as a franchisor. You will need to contact the franchise attorney to make sure the clause in your contracts is up-to-date, considers all the recent case law and is liable for the jurisdiction of your franchise company and the jurisdiction of the franchise outlets where you will be selling these franchises. Make sure you get a franchise attorney who is knowledgeable inexperienced in this area. I hope you will consider this in 2006.

The History of Franchising – The Creation of the Franchise Business

The franchise business has been around a long time, in fact they go back as far back as the 1850’s. The notion of selling off a business or a part of a business in order to expand into new areas usually came from the lack of investment funds from the business owner. Through their creativity they were able to keep the business alive by selling franchise opportunities to would-be entrepreneurs.

While the business of franchising has grown over the years it all had to start somewhere. The concept of franchise businesses began with none other than the sewing machine manufacturer, Singer.

The Singer Franchise Business Opportunity

In the 1850’s the Singer Company produced sewing machines but didn’t have enough capital to actually pay their salesmen salaries. Instead, they created a network of dealers. These first franchise owners paid Singer a fee to work in a particular territory and earned money for each sale of a sewing machine they bought from the company and resold.

Their significance in the start of the franchise and the opportunities it created came from the creation of the contract that is still used today between the original business owner and the new entrepreneur. Many feel the contract was what really sparked the creation of franchises in the future as it allowed business owners to keep some control over how the franchisees were run.

The Coca-Cola Company Franchise Business Opportunity

When Coca-Cola was originally created, it was only sold as a fountain drink. In 1899 two men obtained a short 600-word contract and the permission to bottle the soda.

Thomas and Whitehead soon realized that even though they had a great idea, they couldn’t afford to actually create a bottling company. As an alternative, they created a franchise company selling the right to bottle the product to individual bottling plants.

The KFC Franchise Business Opportunities

One of the most famous start-ups in the franchise industry was Kentucky Fried Chicken. The franchise opportunity began when Harlin Saunders, or the ‘Colonel’ was about to go under. His business started to fail when a highway was created seven miles away from his restaurant. With his business going under, Sanders had to find new ways to get his famous chicken to people.

When Sanders finally lost his business, he went practically door-to-door to sell his chicken recipe. His popularity improved with time and within a few years he had restaurant owners coming to him. He set up franchises and today there are over 10,000 KFC restaurants all over the world.

Companies Leading The Way For Franchise Business Opportunities

The establishment of KFC and others like it led the way for businesses to expand all over the world. It also gave the opportunity for new entrepreneurs to find the path to success. Many of KFC’s first franchise owners became millionaires. People who joined in with similar companies like McDonald’s also found success.

Thanks to these companies, we now have the opportunity to share in the success of other businesses and business owners have the opportunity to expand their dream. By reaching out to others, they can build a franchise empire out of a business opportunity.