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Some important considerations for those looking to open a franchise

At some point in their lives, most people will enter a popular chain to grab a bite to eat or purchase an item, and, after looking around at the sizeable crowd gathered there, think that they should considering opening the very same establishment in another location. Indeed, they may think there's an untapped interest in this particular location and that they could stand to make some very real money.  

In most cases, this is really nothing more than a passing thought. However, there are enterprising individuals among us who actually decide to take the plunge in the hopes of turning a big profit. While this is certainly admirable, it's important for anyone seriously contemplating opening a franchise to consider all of the realities. 

For those unfamiliar with the concept, a franchise is essentially any store whose identical goods or services can be found in other locations across the nation. By way of illustration, consider your favorite fast food restaurants, quick oil change shops or haircut chains.

When a person decides to open a franchise, they, the franchisee, essentially enter into an agreement whereby they pay the corporation, the franchisor, an annual franchise royalty fee out of their profits.  

While it's true that owning and operating a franchise does offer the franchisee autonomy, a reliable business model, guidance from fellow franchisees, access to the negotiating power of the corporation and the potential to make big money, there are a few things that must be kept in mind.

First and foremost, experts indicate that starting a franchise is not cheap, and frequently necessitates significant investments of personal funds or the taking out loans from an entity like the Small Business Administration.

The reason why it costs so much to even start a franchise is that the franchisee is paying for everything from the permission to use the company logo and signage to buying the necessary inventory and equipment.  

Another reality to keep in mind about starting a franchise, experts advise, is that even the corporation with the most name recognition and most stable sales is not immune to risk.

To use the earlier example of the fast food restaurant, quick oil change shop and haircut chain, consider that greater health consciousness may cause people to reconsider their food choices, rising oil prices may cause people to put off vehicle service and the onset of a recession can cause people to cut their hair less frequently.

In light of these and other important issues, it's imperative that those entrepreneurs mulling or actively pursuing the opening of a franchise consider speaking with an experienced legal professional as soon as possible.  

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Robert Kaufman has been selected as a 2013 Top Rated Lawyer in ‘Commercial Litigation’ as will be published in the May issue of The American Lawyer & Corporate Counsel magazine.Alex Kaufman has been selected as a 2013 Top Rated Lawyer in ‘Commercial Litigation’ as will be published in the December issue of The American Lawyer & Corporate Counsel magazine.

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