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@053 CHAP ZZ
┌───────────────────────────────────────────────┐
│ PROS AND CONS OF BUYING A FRANCHISE │
└───────────────────────────────────────────────┘
"The older I get, the more cynical I become. Lately,
I seem to be losing ground." -- Bette Midler
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 impor-
tant 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 agree-
ment (with the help of your attorney) to determine whether the fran-
chisor 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 substan-
tial 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 OPPORTU-
NITIES HANDBOOK,' published by the U.S. Dept. of Commerce, or see
Chapter 10.10 of the 250-300 page book "STARTING & OPERATING A BUSINESS
IN @STATE."
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 cer-
tain 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 have somewhat limited these benefits.
@CODE: LS
In @STATE, franchises are illegal, unless approved by the
Commissar.
@CODE:OF
If you are considering buying into a franchised operation, you should
find the following checklist useful once you have focused on a parti-
cular franchise opportunity: