Franchise 101 – What to Ask Before Opening a Franchise in Texas
Franchise Agreements, Disclosures, Marketing and Sales, and Dispute Resolution
Purchasing a franchise to start your own business is akin to running a branch of the family business. You may get to run the shop, but the franchisor gets to regulate almost everything you do. In the right circumstances, however, a franchise can be a great environment for a new business owner to learn the ropes of operating a business.
In order to evaluate a franchise opportunity, prospective franchisees should understand all the terms of the deal.
Key components include:
- The Franchise Agreement. Almost always drafted by the franchisor, the agreement should include the terms and conditions governing ownership and operation of the franchise, including franchise fees and costs, assignments, advertising requirements, termination, and renewal options.
- Franchise Disclosure Documents. Under FederalTrade Commission rules, disclosure documents must include 23 different aspects of the franchise, including disclosure of existing locations, required fees and costs, franchisor bankruptcy and litigation history, and audited franchisor financial statements.
- Franchise Marketing and Sales. Some franchisors offer or require field training and support, marketing support, compliance support, and ongoing research and development of products or services. Make sure you know what is offered and how much of it is required.
- Dispute Resolution. Be the devil's advocate for a moment and consider what will happen if the franchise relationship does not work out. Decide up front whether future disputes will be addressed through litigation, arbitration, mediation, or a combination thereof, who is responsible for the costs of dispute resolution, and who has the final call in selecting a forum, mediator, or arbitrator, if applicable.
While some states have state-specific statutes governing franchise relationships, Texas does not. Instead, franchise relationships are governed by contract law and Federal Trade Commission (FTC) rules.
Investing in a franchise is not a decision to be taken lightly. The reward could be great, but the risks are also great. Before you invest, contact an experienced Bryan-College Station, Texas business law attorney to explain the details and help you reach your goals.
The attorneys at the Peterson Law Group are experienced in Texas business law and can assist you every step of the way. Call the Peterson Law Group to make an appointment at 979-703-7014 or fill out our online contact form.