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Michael Katz
Michael@BusinessLawyer.com


1-888-780-0910
303-790-4103

LAW FIRM SPECIALIZING IN
FRANCHISE, BUSINESS, AND REAL ESTATE LAW

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The Good and Bad of Investing in a Franchise

THE GOOD AND BAD OF INVESTING IN A FRANCHISE

Investing in Franchises

Franchising is one of the most vibrant and dynamic engines in the U.S. Economy. Before purchasing a franchise, our Colorado Franchise Lawyers will help you know the facts*:

  • Franchised businesses will add 247,000 new direct jobs this year, a 2.9 percent increase to 8.8 million direct jobs, over last year. That is on top of the 235,000 franchise jobs added in 2014.
  • The number of franchise establishments will grow this year by 12,111, or 1.6 percent, to 781,794.
  • Economic output from franchise businesses is estimated to increase by 5.4 percent over last year to $889 billion.
  • The gross domestic product of the franchise sector is projected to rise by 5.1 percent this year, which is faster than the 4.9 percent GDP increase forecasted for the economy as a whole. The franchise sector will contribute about 3 percent of the U.S. GDP in 2015.

As with all investments however, the cautious buyer must weigh the good and the bad that may occur in the purchase of a new business. First, the good:

  • Purchasing a franchise usually means you are buying into an already established business system. That means that many of the kinks and pitfalls of a start-up business have already been worked out.
  • You become your own boss.
  • You have a support system behind you to help with the inevitable questions and concerns that may accompany any business start-up. You are not going it alone.
  • You have other franchisees with whom you can talk.
  • You most often have ready-made advertising campaigns that will help alert the public to your new business.
  • Usually, you can purchase your inventory of goods at a price that is cheaper than you could find on your own.
  • Sometimes, you may more readily find financing for the initial costs.

Now: the bad:

  • For new franchise systems, there may be no track record of franchisee success.  You may be the guinea pig.
  • Operating the business that spawned the franchise is not the same as operating a franchise system. In the former case, the end users are your customers. In the latter case, the franchisee should be your customers. In a new system, there is no real proof that the franchisor can serve in this roll.
  • Initial costs may be higher that you would experience in your own startup because you will pay an initial fee.
  • A startup franchisor may not have the name recognition in your location so you lose the benefit of sharing the good will that would be generated through a recognized name brand.
  • You become your own boss!**

*Statistics derived from the International Franchise Association’s Franchise Business Economic Outlook for 2015 reprinted here with permission. The report can be found at http://www.franchise.org/Franchise-News-Detail.aspx?id=63438 and then following the download instructions found in the final paragraphs of the article.

Unless you are a seasoned franchise veteran, you should NEVER buy a franchise without first consulting with a Colorado franchise lawyer.

We at Corporon and Katz, LLC have been practicing in the areas of franchise and business law virtually since the beginning of franchise regulations in 1979. With over 34 years of experience, we can help you make what may be the largest single investment in money, and the most far-reaching decision in terms of your family’s well being.

**This is found in both lists for a reason. You have to be very careful in your self-analysis. Do you have the personality necessary to operate a business as the boss? Can you handle the inevitable employee hassles and customer complaints? Do you have the patience to build the business?

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