CD ROM Paradise Collection 4/CD ROM Paradise Collection 4 1995 Nov.iso/business/sba952.zip/F217.SBE

Text File | 1995-03-15 | 4KB | 76 lines

@053 CHAP ZZ

        ┌───────────────────────────────────────────────┐
        │       PROS AND CONS OF BUYING A FRANCHISE     │
        └───────────────────────────────────────────────┘

Many small businesses, particularly fast food restaurants
and print shops, are operated under franchises from a large
national company.  There can be substantial advantages in
operating a franchised business, such as the benefits of
national advertising, training programs, and assistance in
setting up and running the business.  If the business you
are investigating operates under a franchise, it will be
vitally important to determine whether the franchise can be
transferred to you, and, if so, to provide for the transfer
as part of the sale in the agreement of sale.  Also, you
will want to carefully review the franchise agreement (with
the help of your attorney) to determine whether the fran-
chisor must approve the transfer, what the costs of opera-
ting under the franchise are, and the other terms of the
agreement.  If the franchisor isn't a well-known and respec-
ted company, you should contact your local Better Business
Bureau (or the appropriate state agency that deals with
franchising) to see if they have any information regarding
the ethics and reputation of the franchisor.  You do not
want to sign on with one of the less-than-reputable fran-
chising operations that charge substantial up-front or oth-
er franchising fees for very little in the way of useful
services.

There are a number of excellent publications you can obtain
that will help you evaluate various franchise opportuni-
ties.  For a listing of where to write for these resources,
refer to the "FRANCHISE OPPORTUNITIES HANDBOOK," published
by the U.S. Dept. of Commerce, or see Chapter 10.10 of the
250-300 page book we publish, "STARTING AND OPERATING A
BUSINESS IN @STATE."

TAX NOTE:  If you do acquire a franchise, either from the
franchising company or as a transfer from another franchis-
ee, you may be able to amortize (write off) the cost of
acquiring the franchise, under certain circumstances, for
federal income tax purposes.  Consult your tax adviser as
to whether or not this will be possible in your case.  If
it IS amortizable, you may want to allocate a significant
part of the purchase price for the business to the fran-
chise, which could save you major tax dollars in the long
run.  However, tax law changes made in 1989 somewhat limit-
ed these benefits, allowing 10-year amortization for lump
sum franchise payments of no more than $100,000, but requir-
ing 25-year amortization if the price exceeded $100,000.

More recently, 1993 tax legislation has now further changed
the rules.  The 1993 law generally allows 15-year amortiza-
tion of intangible items, including most kinds of franchises.
(Periodic franchise payments, based on, for instance, a per-
centage of sales, continue to be immediately deductible in
most cases, and do not have to be amortized, unlike an up-
front or lump sum payment for a franchise.)  The new 15-year
amortization period generally applies to intangibles ac-
quired after August 10, 1993, but a taxpayer may elect to
apply the new law retroactively to acquistions after July
25, 1991.

@CODE: LS
In @STATE, franchises are illegal, unless approved
by the State.
@CODE:OF

If you are considering buying into a franchised operation,
you should find the following checklist useful once you
have focused on a particular franchise opportunity: