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Franchise Fees
Choosing a Franchise That Matches Your Business Goals
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By: Arlette Measures
Some Franchising Drawbacks to Consider

With any type of business you start, whether a franchise or your own proprietorship, there is always the risk of losing the money you invest if the business fails. When buying a franchise, doing thorough research before making a purchase is an important key to success. Franchise sellers are legally required to disclose certain information about their business to potential buyers. Make sure you get all the information you need first before entering into this form of business.

The franchise fee can be substantial. You also will have other costs: for example, you may be required to give up significant control over your business while you take on contractual obligations with the franchisor.

The contract between the two parties typically benefits the franchisor far more than the franchisee. As a franchisee, you will be expected to meet certain requirements, such as sales quotas. You will also have to purchase your equipment, supplies and inventory exclusively from the franchisor.

1. Suppliers from whom you may purchase goods
2. Goods or services you may offer for sale
3. Where you can sell goods or services
4. Use of the internet to sell goods or services to customers in and out of your territory.

These limits do have their purpose; without such restrictions, you could end up competing with the
franchisor or other franchisees for the same customers. According to the FTC, however, these kinds of restrictions may limit your ability to exercise your own business judgment in operating your outlet.

Starting your business may take several months. Estimate your operating expenses for the first year and your personal living expenses for up to two years. Compare your estimates with what other franchisees have paid and with competing franchise systems. You may be able to get a better deal with another franchisor. An accountant can help you evaluate this information.

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