Tag: Franchising

Will the Economic Stimulus Bill Create New Franchise Opportunities?

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The following article was written by Guest Author, Ray Haliber. By accessing his franchise website at www.azfranchises.com, you’ll find Ray offers a resource for entrepreneurs to find and research franchise opportunities for sale from A to Z. Ray has ten years’ experience as a small business broker in Arizona. His small business site may be previewed at www.azbop.comfinancialaid-photo.

Will the Economic Stimulus Bill Create New Franchise Opportunities?
as submitted by Ray Haliber

With the recent passing of the huge economic stimulus package there has been some speculation about whether some of its provisions will create or spur the development of new franchise business opportunities in certain industries like health care or renewable energy. The obvious question is whether major government incentives and investments in these 2 highlighted industry sectors will create sustainable franchise business models after the initial boost from the stimulus spending bill plays out.

In my opinion the answer is that this is a very realistic development given the scope of the stimulus bill and some of stated new policies of the current administration regarding health care and energy. In fact, potential small business opportunities emerging from the stimulus bill are becoming more obvious, (particularly in renewable energy) and appear to have a very good chance to create some viable franchising opportunities for entrepreneurs.

Heath Care: According to what I have read, the economic stimulus package includes nearly $20 billion dollars to help digitize or computerize health and medical records in the United States. I would think this could present some serious potential opportunities for small business owners and entrepreneurs because obviously private companies will become involved in providing services for this enormous and long term project.

Even with the recent news that Sam’s Club and Dell intend to enter this market by selling software to digitize medical records doesn’t mean there will not be plenty of other niche opportunities and markets available to develop and service. According to recent stats only about 17% of doctors offices are currently digitizing medical records. And with nearly 800,000 active physicians in the United States, many with small to medium size practices, their will undoubtedly be opportunities for smaller players to develop business franchising models that can service business opportunities that emerge from this program.

Renewable Energy: From what I have read and heard nearly $60 billion of the $790 billion stimulus bill will be spent on alternative and clean energy projects and other environmental related projects and research. This includes billions of dollars for greening government buildings, weatherizing homes and businesses, and providing significant tax credits and grants to help fund and subsidize renewable energy applications across the board.

Surely this type of massive government investment will almost certainly spawn a number of new franchising concepts to service the emerging business and consumer needs that will be created by this commitment. This would conceivably include the development of solar power related service franchises that would provide installation of photovoltaic panels for residential and commercial applications. Or green consulting franchises that would provide expertise to commercial businesses on how to “go green” or conserve energy. Or maybe new home improvement related franchise businesses will emerge that specializes in weatherization and residential energy efficiency.

In summary it’s going to be an interesting time to see how the franchising industry will adapt and ultimately capitalize on the potential business opportunities and new markets that will be created and supported by the stimulus bill spending. My guess is that it should ultimately produce some viable and profitable franchise companies that may someday become familiar household names and brands.

Introduction to International Franchising

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world-map-photo1The following article was submitted by Guest Author, Kathryn Rookes. Kathryn is an experienced franchise attorney and a member of FSB Legal, a virtual law firm. She is one of the very few franchise attorneys in the United States with experience in a government regulatory practice (Maryland Division of Securities), private practice, and as in-house counsel. With this diversity of experience, Kathryn understands the issues that franchisors face on a daily basis.

Introduction to International Franchising
as submitted by Kathryn Rookes, Attorney, FSB Legal

Introduction

Many franchisors perceive international expansion of their franchise concepts to be a great way to generate cash on a short term basis and do not fully appreciate the long‐term commitment that successful international franchising requires. The level of commitment and resources required to expand internationally is often greater than that required for domestic expansion. This article provides a brief overview of the requirements for international franchising and identifies a typical international deal flow process. We also have included several resources that contain additional information for further research.

Evaluate Your Resources

When making the decision to go international, you must consider the additional resources that you will need to successfully expand and support your new international franchisees. Areas of increased costs to consider include telephone and postage, travel, marketing, trademark registration, preparing international franchise agreements and disclosures, costs of goods due to export/import controls, foreign taxes, translations and document registration, to name a few.

Determine What You Will Offer

International deals are normally structured in one of three ways. First are single unit franchise sales (sometimes called direct franchising), much like many systems sell in the United States. The next option is area development rights, in which you identify 1 developer who opens multiple units of its own. The third common option is master franchising (also called sub‐franchising). In this method you identify 1 developer that has the right to open its own units, and also the right to sell additional units to other franchisees. In addition to these three methods, some international arrangements are structured as joint ventures, in which you are an equity partner with your foreign franchisee. Each method has its own risks and rewards, so you must evaluate your goals and your resources to determine which method best suits your needs.

Finding Good Research

Your research on each opportunity generally consists of two areas, research on the territory and research on your prospective franchisees. The internet provides a wealth of information on the territory. The United States Department of Commerce is a good starting point as is its included agency, the International Trade Administration. The trade promotion unit of the International Trade Association, the United States Commercial Service also provides significant help by providing market research, worldwide trade events for promoting your offering, assistance in identifying prospective franchisees, manufacturers and distributors, and individualized counseling on going international.

For research on your prospective franchisees, you are well served to retain the services of one of the many companies that provide due diligence or investigative type services. Research on people and companies in other countries is a very tricky business, as the stability, accuracy and adequacy of information in other areas of the world is often lacking. These companies will be able to evaluate the trustworthiness of the information they obtain, and can educate you on the limitations of the information so that you can make your own decisions on the risks you are assuming by choosing any particular franchisee.

Establishing a Deal Flow Process

The deal flow process for international deals will usually be significantly different from your domestic deal flow process and will necessarily require more time and resources for each deal. We generally recommend the following steps to ensure compliance with Unites States’ and the foreign country’s local law.

1. Determine whether there are any legal or practical barriers for your target country. Legal barriers include the U.S. government’s trade embargos and terrorism sanctions, in which U.S. businesses are prohibited from conducting business in certain countries. You may find this information primarily at the United States Department of the Treasury, Office of Foreign Asset Control website. The primary restrictions involve, as of January 2009, Balkans, Belarus, Burma, Cote d’Ivoire (Ivory Coast), Cuba, Democratic Republic of the Congo, Iran, Iraq, former Liberian Regime of Charles Taylor, North Korea, Sudan, Syria and Zimbabwe. Practical barriers (which also can be legal in nature) might include currency export restrictions (you won’t be able to get paid), prohibitions on foreign investment and/or ownership (you’re not allowed to invest there), lack of governmental infrastructure (you can’t register your trademarks or protect your intellectual property, trade secrets or contract interests due to lack of a stable court system), competition (both laws and actual), taxes (you can’t afford), restrictions on transfer (can’t stop your franchisee from selling out), economic conditions (won’t support your business model) and other such items.
2. Once you have determined that there is no barrier, you should determine whether there is a franchise disclosure and/or registration law in the target country. If there is, you should retain local counsel immediately to draft the necessary disclosure and handle the registration for you. We are happy to assist you with this process.
3. Identify your prospective franchisee and begin your background check on the prospect.
4. Negotiate and document a Letter of Intent that contains the material terms of the new deal. You will normally require a deposit against the initial development fee on the signing of the LOI.
5. Retain local counsel to review your proposed form of agreement to revise the agreement to ensure that it complies with all applicable local laws.
6. Negotiate with your prospective franchisee on any changes to your form of agreement. Once all terms are negotiated, you will finalize the agreement and proceed with signing.
7. Once your agreement is fully signed, you will want to proceed with registering your trademarks in the country, if you don’t already have the marks registered. If you have a large budget for your international expansion, you should ideally move this step up as early as you can afford, even up to step 2 if possible.
8. Once all of the above is accomplished, the real work begins. You now need to arrange for training, import of products or ingredients, site selection assistance, site development assistance, marketing assistance, and all of the other support services that franchisors normally provide.

Summary

With proper planning, international expansion of your franchise system can be an exciting new challenge that brings you many rewards. At FSB Legal, our attorneys are experienced in international franchising and have completed deals in over 35 countries. We are happy to help you begin this journey.