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Franchising basics that are important to understand

Franchise opportunities are one way to start a business or grow a business. As a result, those considering pursuing a franchise opportunity should be familiar with the ins and outs of franchises so they can determine if a franchise is the best option for them.

A franchise at its most basic definition is a business model that allows for the business owner, who is referred to as the franchisor, to sell the rights to their business name, logo and model to another entrepreneur who is referred to as the franchisee. Common examples of franchised business include restaurants, hotels and other service—oriented businesses.

There are many different aspects to a franchising decision but one of the most careful considerations a potential franchisee should evaluate are the legal considerations associated with a franchise. Potential franchisees should secure any franchising reports that are available; familiarize themselves with any applicable rules and regulations; and ensure they fully understand whatever contract agreement they will be entering. In addition to a contract, important franchise legal documents and concerns franchisees should consider include a letter of intent, confidentiality agreement, financial statements, tax returns, contract documents, leases, sales agreement and a purchase price adjustment.

Franchise opportunities are a great way to start up or expand but franchisees and franchisors both need to ensure they understand what is involved and how to successfully navigate the legal aspects of a franchise agreement. By doing so, they lay the best possible foundation for a successful franchise relationship and growth opportunity.



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