What You Need to Know Before Purchasing a Franchise

Entrepreneurs: Here’s a look, from a legal perspective, at what to consider if you think a franchise might be a way to start a business.

Why a consider purchasing a franchise
1. Proven business model
2. Market recognition
3. Advertising strength
4. Might be easier to finance

A “Franchise” is an oral or written agreement, either express or implied, which provides all of the following[1]:
1. Grants the right to distribute goods or provide services under a marketing plan prescribed or suggested in substantial part by the franchisor.
2. Requires payment of a franchise fee to a franchisor or its Affiliate.
3. Allows the franchise business to be substantially associated with a trademark, service mark, trade name, logotype, advertisement, or other commercial symbol of or designating the franchisor or its affiliate.

What a franchise is not
1. A guaranty of success
2. A job
3. A recipe (but it might include recipes)

Due diligence on Franchisor
1. Check their financial capability
2. Check their reputation
  1. Ask other current franchisees
  2. Ask business rating services like Better Business Bureau and/or Iowa Business and Industry

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