Franchise vs. Your Own Business: Which One is the Best for You?

Buying a franchise and owning your own business each have their own merits and each carry their own associated risks. The question of which one is best for you is a highly individual process, one that should meet with a highly individual answer.

Franchise

A main attraction of a buying a franchise is the brand recognition and the use of trademarks, recipes, etc., and the often built-in customer base that comes with it.  Another is the ongoing training and support from the franchisor.

In exchange for these rights, a franchisee is typically required to pay both an initial license fee and ongoing royalties. It is typical practice for these royalties to be paid based upon sales, not profits. So even if a franchise is not profitable, the franchisee is still required to pay a royalty to the franchisor.  Franchisees are also expected to conform to all the franchisor’s rules. That might mean restrictions on when or where one can conduct business, the appearance or design of an establishment, and the types of products or services that may be sold.

It is also important to understand that franchise rights are for a limited time: they may or may not be renewed. In addition, terms from the original franchise agreement may be changed by the franchisor, and it is possible to lose the right to a franchise due to breach of contract.

Owning Your Own Business

For many entrepreneurs, the concept of owning one’s own business seems ideal:  You can be your own boss, set your own hours, etc. Depending on the nature of the product or services, a start-up company typically has more freedom than a franchisee when it comes to making decisions about location, advertising, hours, etc.

The reality is that the hours sometimes dictate themselves and there are often complexities that may not reveal themselves until after someone has operated the business for a while. Compared to a franchise, establishing a new brand and competing for share of a particular market often requires a greater amount of resources.  Although there may be training and advice available from small business associations, it can be more difficult to negotiate necessities such as financing for a start-up company with little to no track record.  However, because the business is solely owned by an individual, so too are the profits.

There is no one-size-fits-all business model, and if anything, that simple fact stands as a testament to the viability of a free market economy. Similarly, there is no substitute for asking detailed questions of a number of entrepreneurs who are either involved in a franchise or who own their business. The time you invest in researching your options may be the best investment you can make toward ensuring the success of your business.

Importance of Having an Attorney Review Your Contract

A significant portion of our business practice involves drafting, revising, and reviewing contracts, and we frequently receive requests for contract reviews from prospective clients.  All too often, however, this review is requested after the contract has already been signed, at which point we can only provide information and clarification regarding the agreement which is already in place.  As one might imagine, this is not the ideal time to seek a contractual review.  By consulting with an attorney BEFORE actually signing a contract, one can ensure the document fairly and accurately represents the intent of the parties signing the agreement.

While many contracts, such as credit card receipts, are never expected to be read, let alone reviewed, any agreement involving a significant amount of money or time should be reviewed by an attorney.  Many contracts appear to be standard “boilerplate” or non-negotiable, but this is not always the case.  Frequently, with the help of a competent attorney, terms and conditions can be modified, added, or removed to protect your interests.  Occasionally, even inadvertent errors can be corrected to the benefit of both parties.  Having a contract reviewed by an attorney is a small price to pay in order to reduce or eliminate potentially significant future risk or exposure.

Most of the agreements you sign will have been drafted by the other party, and therefore will tend to favor the interests of that party.  An attorney can make sure your interests are also considered and protected, and can help explain, modify, or eliminate the confusing “legalese” which is often illegible to most normal humans.  It is much easier and cheaper to address an issue before it becomes a problem.  When it comes to signing a contract, this could not be more true, as there is often nothing that can be done to modify a signed agreement.

When entering into any transaction which involves a significant amount of money or time, it is best to have an agreement in place that has been reviewed by an attorney.  Even if the other party does not offer a written agreement, it may be in your best interest to consult with an attorney to have an agreement drafted to document the transaction.  Proper preparation beforehand can help to prevent significant headaches and unexpected consequences down the road.

 

Premises Liability: One Accident Could Cost You Your Business, Part 2

If you are a property owner, anyone coming through your door or walking along the sidewalk outside could be a plaintiff naming you as the adverse party in a premises liability suit. While not all accidents are preventable, there are several ways a property owner can limit the risks of an accident that can trigger a premises liability suit.

To begin, a property owner needs to be reasonably aware of any dangers on and around the premises. That means making sure that a property, whether it is commercial or private, is kept in good condition. Many hazards, including common causes of slip-and-fall accidents such as snow covered sidewalks and leaking gutters, are very obvious and can be dealt with directly. Other common causes of accidents that involve premises liability include crumbling steps, missing or broken handrails, falling objects, inadequate lighting, unmarked or concealed holes or excavations, and unsecured mats.

Conducting routine inspections of a property can help to identify any changes in structural and safety conditions. If a hazard is identified, steps should be taken to clearly identify the problem. For repair or renovation work involving contractors, it is important that the business has a certificate of insurance on file to further limit your liability while a company representative is performing any work on site.

For business owners, it can be helpful to establish an ongoing hazard awareness program among employees. For example, a written maintenance procedure could include a routine inspection schedule and a checklist to look for hazards that could cause an accident.  The policy should make clear the procedures for reporting a maintenance issue or liability hazard and the proper steps for alerting visitors to avoid any hazard until it has been repaired or removed. Having a written record of repairs, replacements, and renovations can also prove valuable.

Another way of protecting a business from premises liability claims is to purchase premises liability insurance. This form of insurance protects a property owner from claims that a person was injured while on the premises. Such policies protect against payments as the result of bodily injury, property damage, medical expenses, the cost of defending lawsuits, and settlement bonds or judgments as part of an appeals process.  However, when comparing policies, it is important to understand the limits in terms of both scope and coverage.

Inspections ordered by an insurance underwriter can help to identify deficiencies in a property’s liability, such as a gutter downspout that drains onto a walkway, the presence (or absence) of a snow removal program or a missing or loose handrail on a flight of steps can pose hazards for both visitors and passersby. Some underwriters automatically request a survey of a property in order to determine what, if any, hazards exist.

Not all accidents can be avoided, of course, but it is possible to correct many of the unsafe conditions in and around a property that can trigger a premises liability suit. As always, it’s better to be safe than sorry.

Premises Liability: One Accident Could Cost You Your Business, Part 1

Accidents will happen, but in today’s litigious society, when they involve premises liability, they can come at more of a cost than ever. Don’t let it cost you your business.

Premises liability involves the breach of duty of care that is owed by an owner or occupier of property to protect invitees from dangerous conditions and defects on a property. Common incidents that can lead to premises liability claims can range from a slip and fall on a public sidewalk to a slip and fall on the way into or out of a home office that generates foot traffic, such part of a home that has been set up to serve as an accounting office or hair salon. Regardless of the type of property or injury involved, property owners are liable for all injuries incurred due to hazards associated with their property, whether it is a home, a business, or a business operated from home.

The legal theory behind premises liability is that property owners have a duty to make sure that anyone, whether invited or not, is reasonably safe while on the property. If a property owner does not make the property reasonably safe and someone is injured while there, then he or she can be held liable. This may be a viewed as a combination of the property owner’s fault as well as that of the injured person(s), and it can be a matter of determining the amount of liability for each party.

We’ve all heard of someone slipping on a public sidewalk and bringing a lawsuit for injuries suffered. For example, a lawsuit may be brought if someone is walking on a sidewalk and trips over an uneven section or crack and was injured as a result. In that event, a claim might be made against the town, which owns and maintains the sidewalk.  But what if someone were walking on  a stretch of public sidewalk adjacent to a business and slipped from a patch of snow that had not be cleared away? Who would be responsible? Here, premises liability would point to the business owner for not keeping a pathway directly outside its premises free from debris that could cause harm to either guests or passersby.

The principle of duty of care owed by an owner of a property to protect invitees and visitors also applies to those who aren’t invited. For example, if a property owner were aware of a trespasser, but didn’t warn him or her of a hazard on the property, such as a guard dog indicated by a sign, then the property owner could be held accountable if injuries were sustained as a result of any physical encounter.

In short, the duty of care in premises liability can be breached if:

1. The property owner is aware that dangerous conditions located on the property have caused or are likely to cause injury to another party.

2. It is believed that the invitee had no awareness or could not have been aware of any danger that may have led to an injury.

3. The property owner has not indicated or corrected the hazard so that any danger may be avoided.

In addition to slip-and-fall accident and animal bites, some of the more common types of premises liability cases stem from inadequate security, roadway and sidewalk defects, such as potholes, cracks or heaved sections, falling objects, unmarked excavations or holes, and poor lighting.

In the second part of this article, we will discuss some of the ways a property owner can limit the risk of premises liability litigation.

Relevant Article: 4 Tips for Buying a Business from BusinessDictionary.com

Buying a business can be an excellent way to become a business owner.  It saves you from many of the headaches, heartaches, and risks associated with unproven start-ups.  It’s important, however, to be fully informed as you embark on the process.  Here are four “must-knows” about buying your first business.

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Strategic vs. Private Equity Buyers for Your Business

When the time comes to sell your business, you may be thinking of retiring in style or to fund your next venture. Regardless of the reason, the goal is the same: to maximize the selling price of your business. There are typically two main types of buyers that you will need to consider: Strategic or Private Equity (Financial).

Strategic buyers are companies in a similar, competing, or collaborative industry. They are buying a supply chain, distribution, intellectual property, a brand name, or another business function that will enhance their own business… or all of the above. Financial buyers are basically private equity firms that want free cash flow and profitability.

There are some key factors to consider when determining which category of buyer to pursue.

Purchase Price. Strategic buyers often place the highest value on your company, but private equity firms are strategic when they look for add-on acquisitions to their existing portfolio companies. This is not a “set-in-stone” rule by any means, but it is a well-established trend. While private equity firms are buying cash flow, strategic buyers get that same cash flow AND hope to achieve efficiency, expanded growth and/or added value with a merger.

Earn-out. With both buyer categories, a portion of the purchase price will likely be an earn-out. Either certain benchmarks must be met to get some of the money out of the deal, or that a portion of the money is tied as a percentage to revenue, profits or other metrics. In financial deals, the earn-out time period is usually shorter and is a smaller percentage of the total purchase price. Strategic deals often have a longer earn-out period (2 to 5 years is not uncommon), and the earn-out is often a larger percentage of the total deal value.

Financing. Strategic buyers — if they are big enough or have enough cash on their balance sheet — may not need bank financing. Private equity deals usually require bank financing which can add an extra step and possible hurdle in the sales process.

From a sale standpoint, it is wise not to limit your business and you should out to reach out to both types of buyers. This allows you to cast the widest net possible in order to identify the best buyer for you and your business.

Relevant Article: Can You Trademark a Name of a Business if the Name Exists in Another State?

Your business name identifies your products and services, so you should take the time and money to protect this asset. Even if another company claims the name in another state, you may be able to trademark the name. Your ability to do so depends on whether you are in similar industries and whether the company already registered the mark.

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