Best of www.BestZips.com (Collector's Edition)/Best of WWW.BESTZIPS.COM Collector's Edition (JCSM Shareware) (JCS Marketing).ISO/legal___/sba964.zip/F217.SBE

Text File | 1996-11-06 | 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
franchisor must approve the transfer, what the costs of
operating under the franchise are, and the other terms of
the agreement.  If the franchisor isn't a well-known and
respected 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
franchising operations that charge substantial up-front or
other 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 opportunities.
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 get a copy of the
"FRANCHISE BIBLE," by Erwin Keup, Esq., at your local
bookstore.

TAX NOTE:  If you do acquire a franchise, either from the
franchising company or as a transfer from another franchisee,
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 franchise,
which could save you major tax dollars in the long run.
However, tax law changes made in 1989 somewhat limited
these benefits, allowing 10-year amortization for lump sum
franchise payments of no more than $100,000, but requiring
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
amortization of intangible items, including most kinds of
franchises.  (Periodic franchise payments, based on, for
instance, a percentage 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 acquired after August 10, 1993, but a taxpayer
may elect to apply the new law retroactively to acquisitions
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: