Jobs & Money Detail
Getting a franchise
Many British migrants who relocate to the USA are drawn in by the American Dream – that long held American belief that you can work your way up the economic ladder
The idea is that with a little hard work and a great idea you can turn yourself from broke to billionaire overnight. While this might be a rose-tinted view on American life the yanks are certainly an enterprising bunch. Entrepreneurs are respected and encouraged in the US and this, coupled with the fact that buying a business in America is one of the most popular routes of obtaining a non-immigrant (E-2) visa, makes buying a business very appealing indeed.
Franchises have a much higher success rate then other start up businesses so are an ideal way to set up a business without taking a huge leap into the unknown. A franchise is when a business owner – or franchisor – allows other franchisees to use it's name and products. Many franchise agreements are geographically based so that only a single franchise will offer that particular service in an area. The franchisee will have varying degrees of control over how products and services are marketed or sold.
Amanda-Jo Nicholson, managing director of Govoni International an overseas business investment specialist, explains some of the franchises that are available, "This ranges from very large corporations like McDonalds to Subway and Sodexho and Pacmail stores." Nicholson is keen to point out that a true franchise will comply with the Federal Trade Commissions rules on franchises. "The Franchise Opportunities Handbook, published annually by the US Department of Commerce, describes more than 1,400 companies that offer franchises," says Nicholson.
There are many benefits of franchsing as opposed to operating an independent business. Franchising is something which many people find a supportive and helpful environment to work within. "Some franchises (definitely not all) offer training and support on all aspects of running a business from setting up the outlet, how and what to sell, advertising and marketing, expansion planning and staffing," explains Nicholson. It is extremely important to shop around and compare what is on offer as benefits differ greatly between franchises. As Nicholson says, "Some will offer 'membership' meetings where you can meet with and share experiences and ideas other franchises running outlets of the same company".
A franchise lowers the risk because someone else has already pioneered the concept, tested the ideas and found out what works and what doesn't. Of course, there are always two sides to every story. Franchises are by no means risk free and come with the same amount of commitments in time and money that starting up on your own incur. "Often more costs are involved initially (there may be registration fees, etcetra) and on-going royalties (a commission on the sales you make) are usually paid to the company monthly and/or annually, and the amount of these can vary widely," explains Nicholson. "Some clients have found that they feel restricted in franchise agreements as some can be very dictatorial in terms of specifying what you can and can not sell, what days/hours you have to open, what types and how often you advertise, and in some agreements there are very strict sales targets to meet – and even consequences of not meeting them." As franchises differ so much working with a good advisory team (visa consultant and/or brokers) to ensure you fully understand what terms are in your personal agreement is a good idea.
Getting a Franchise
Once you've determined that purchasing a franchise is the right step for you, you will need to decide on the type of product you want to invest in. As with starting up any business you will probably want to choose a franchise with a product you are interested in or can get passionate about. If you are going to live, sleep and breath your business you don't want to choose something that's not right for you. Some people, but not all, turn to their current careers for inspiration.
So, if you've decided the type of business you wish to buy how do you go about getting a franchise? "You can approach the organisation directly to establish if they are recruiting franchises in the area you wish to be in," explains Nicholson. She goes on to say: "If you prefer to buy an already trading outlet, working with a reputable business broker will help you through the maze of information."
With most franchise organisations, you will need to complete application forms and attend a meeting with the company to ensure you meet their criteria. But before commiting to a franchise there is some research you can, and should, be completing. Nicholson explains: "Ensure you have a full understanding of the type and terms of any agreement you are entering into". Nicholson continues, "Ensure the franchise or business opportunity is abiding by the FTC rule on franchise and business opportunity selling".
The FTC rule says that a franchise or business opportunity seller must give you a detailed disclosure document at least ten business days before you pay any money or legally commit yourself to a purchase. Nicholson says you can use these disclosures to compare a particular business with others you may be considering or simply for information.
The disclosure document includes:
Names, addresses and telephone numbers of at least ten previous purchasers who live closest to you;
A fully audited financial statement of the seller;
Background and experience of the business' key executives;
Cost of starting and maintaining the business; and
The responsibilities you and the seller will have to each other once you've invested in the opportunity.
If the seller doesn't give you a disclosure document, ask why. Nicholson says, "Verify the explanation with a consultant/attorney, a business advisor or the FTC. Even if the business is not legally required to provide a disclosure document you may still want to obtain one for your own information".
Another point which people should keep in mind is that many businesses market themselves as being a franchise – when in reality they are not a 'registered' franchise but are a business which has several outlets and one of these is being sold off. "Some businesses are licensing agreements not franchises, in that they are selling the right to use a businesses trading name in a certain outlet or area," points out Nicholson. Neither of these two options are necessarily better or worse that buying a franchise (in these agreements often many of the same traits exist – for example an annual payment to the licensor for use of the name can be like paying royalties to a franchisor).
However, people should be aware of which type of agreement they are entering into. A good business broker will help you disseminate all the different types and will work with you to ensure there are no clauses in any of the agreements (before you sign them) which would stop you from obtaining a visa. Nicholson highlights an important point: "A main misconception from a visa perspective is that franchises are treated differently to other business types, when in the majority of cases they are not. "Franchises (and Licensing Agreement arrangments) will fall in to the same two categories that every other visa related business does. The business, and how it is being purchased, still has to adhere to and meet all the relevant visa criteria."
The E-2 visa requires a 'substanial' investment and the business must be able to provide a salary for the investor and their family. Buying a franchise is becoming increasingly popular in the US – according to industry statistics a new franchise opens somewhere in the US every 17 minutes.
Operating a franchise isn't the best option for everyone – you will need to assess whether you have the right skills and attitude to succeed. But if you think you have what it takes, and you have the financial means, providing you carry out thorough research and seek professional advice a franchise could be your route to living out your stateside dream.
Get the facts
Before you buy a business:
Study the disclosure document and proposed contract carefully.
Interview current owners in person
Investigate claims about your potential earnings.
Sellers also must tell you in writing the number and percentage of owners who have done as well as they claim you will.
Shop around. Compare franchises with other business opportunities. Some companies may offer benefits not available from the first company you considered.
Listen carefully to the sales presentation. Some sales tactics should signal caution. For example, if you are pressured to sign immediately 'because prices will go up tomorrow,' or 'another buyer wants this deal,'.
Get the seller's promises in writing.
Consider getting professional advice when using a franchise as a visa and business opportunity. Any professional you consult should be looking at the proposition from both angles. What could be a good business venture may not necessarily make a good visa case.
For further information:
Govoni International
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