Franchise Business: Key Information and Essential Documents
Grace Hamilton
Published Feb 19, 2025
This is like the fast-food places or coffee shops you might visit regularly. But what's it really about when you open a franchise?
Understanding a Franchise
A franchise license is like a key that opens the door to a special relationship between the owner of the brand (the franchisor) and the person opening the new shop (the franchisee).
It gives the franchisee permission to use the brand's name, logo, and style to open their own version of the business. These licenses allow small business owners to manage parts of the business in different ways.
There are mainly two types of franchise licenses:
Product or Trade Name License: This is a simpler type where you get the rights to use the brand's name and logo. As a franchisee, you make most decisions on your own, and you have lots of control over your business.
Business Format License: This type involves a deeper connection with the brand. You're not just using the name, but you're also adopting the brand's way of doing business. It typically includes ongoing support like training, help choosing a location, supplies to sell, an instruction manual, business goals, and marketing plans. They might even help you with money matters.
Essential Documents for Franchises
If you're thinking about starting a franchise, you have to look closely at all the tiny details before you sign on the dotted line. The franchise agreement is a serious contract that shapes your business, and you must follow it.
The Federal Trade Commission (FTC) says that you must receive a document full of important info about the franchise (a franchise disclosure document) at least two weeks before any agreement is signed.
Talk to a lawyer to check that every important detail is in the franchise disclosure document and the franchise agreement. They should clearly mention things like the fees you pay at the start, any other fees, how much control the brand will keep, and ongoing payments for using the brand.
A lawyer will also help you understand the rules you need to follow in your state for owning a franchise.
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