Before the FDD can be prepared, a franchisor needs to have the proper business structure or entity created along with a name that can be trademarked federally through the United States Patient and Trade Mark Office in Washington, D.C. The trade name is the corner stone of the franchise business. As the name is branded regionally and nationally, more valuable the franchise becomes. Brand name recognition by the general public is what all franchisors strive to obtain and achieve over time.

As you can already see, a consultant teaches, informs and prepare the new franchise client for franchising. The more knowledgeable the franchisor becomes the better equipped the company is to make the proper decision related to franchise. One of the most important factors in franchising is the franchise system. Developing a concept or existing business into a franchise system requires many decision. And for every decision to be made there may be multiple options to consider.

Profran Consultants uses a 21 page questionnaire to learn particular facts about the business concept. Most young franchisors discover that during the franchise development process, they learn things about many aspects of their business never before considered. Often a young franchisor will state I would have never considered all of the options available to me had I not decided to franchise my business.

An experienced and seasoned franchise consultant can make the transaction from business owner to franchisor exciting, enjoyable and effortless in most cases. One of the most common questions is, “don’t I have to go to an attorney to develop a franchise?” My answer often surprises most potential clients when I say, “Not in the early stages of development.” Unless the attorney is a franchise business consultant in addition to being an attorney, the answer is no. Attorneys are trained to provide legal advice and prepare legal documents. How can an attorney assist or help you when there has been no evaluation of your business provided or business system developed? Many franchisors have waste time and money having an attorney prepares the required document before the franchise system has even been developed. There is a time and place for the attorney involvement but not necessarily at the beginning. One of the most important tools in the franchise system is the franchise operations manual. Contained within the FDD is the actual franchise agreement that franchise candidates sign. The franchise agreement refers to the operations manual in many places therefore how can an attorney prepare an agreement without knowledge of the operations of the business contained in the operations manual?

As a franchise consultant I’ve consulted with thousands of business owners who were considering franchising their business. The majority of those were recommended NOT to franchise because of one or more factors. But over 800 over the past 30 plus years were encourage to proceed with their dream to franchise. Business and management evaluation is extremely necessary in making the decision to franchise. Franchise is not for every business or everyone.

Your name is the first thing potential clients will see or hear, so it had better leave a lasting impression.

Where do you start? First, pick a name that’s memorable. New businesses come and go, but it’s the ones whose names stand out that get new clients.

Think about it. The harder the name is to say or spell, the harder it is to find in the phone book or on the Internet. Plus, if people are afraid to mispronounce it, you’ll miss out on all that good word-of-mouth public relations.

Next, pick a name that gives a clue as to what your business does. Just because your favorite flower is a daisy doesn’t mean you need to incorporate the word daisy into the name of your auto body shop.

Sure, business names are personal, especially with small firms. But too many businesses focus their branding on what they like rather than the tastes of their target audience.

Also, try to stay away from trends. Pick a name that is timeless and branding that will appeal across the board.

If you’re running a day care center, for instance, you’re marketing to the child’s parents, siblings, grandparents and community. Choose a name that is gender-neutral, age-neutral and location-neutral.

What’s the long and short of it? The longer the name, the harder it is to say — and type, when you’re thinking about Web domain names. Long names tend to get abbreviated or shortened in marketing materials and Web addresses, which ultimately leads to confusion and frustration.

Think about Google, Target, Kodak, Pepsi, Ingles, Belk and Taco Bell. Just about all the great company names and products are short and easy to say, usually one word or two.

What about personal names? They can add credibility to your company, like McDonald’s, L.L. Bean and Williams-Sonoma. But in my book it’s better to pick something catchy that lends well to a great logo and great image design. Think Amazon, Yahoo, Krispy Kreme and Juicy Couture.

So, what’s next? Stake your claim. Register your assumed name or file your incorporation papers right away. Get your domain name from services like www.godaddy.com or www.dotster.com. And start using either TM (trademark) or SM (service mark). You don’t have to register them to use them.

For more protection, the cost of purchasing a U.S. trademark or service mark is a drop in the bucket compared with trying to defend it later, especially if you’re thinking about nationwide growth or franchising.

Franchise laws have been applied to contractual relationships that to some appear far removed from the traditional franchise industries, including software licenses, merchandising licenses, and Internet technology licenses.

Franchising as an identifiable form of business began in the 1950’s with such chains as McDonald’s, Holiday Inn, H&R Block, Century 21, and KFC. Growth accelerated in the late 1970’s, and shows no sign of slowing. With the growth of franchising has come government regulation, to curb perceived industry abuses. In the U.S. about 40 states and the Federal Trade Commission (“FTC”) now regulate franchise offers.

Internationally, about 25 countries also have passed franchise registration, disclosure or relationship laws, including, for example, some major U.S. trading partners: Canada (Ontario and Alberta provincial laws), Mexico, Brazil, China, Korea, Japan, France, Spain, Russia and Australia. Many countries also have distribution and licensing laws that apply to franchise agreements. Examples of such laws include: trade regulation laws that limit certain restrictive covenants in franchise and distribution agreements, technology transfer agreement registration laws in many developing countries, and laws restricting termination of agents and distributors that may apply to franchises.

If a relationship is a franchise, franchise laws may regulate pre-offering disclosure, may require registration with and approval by a government agency, and may regulate the contract and the relationship, including territory, transfer, termination, and renewal. Violations of these laws can result in criminal charges, fines, civil liability with private causes of action, personal liability of responsible employees and owners, damages, rescission (return of investment), voiding of the agreement, attorneys fees, court costs, and punitive or treble damages.

What Is A Franchise?

The definition of what constitutes a franchise under law varies considerably from country to country, and from state to state. The definition that applies throughout the United States by virtue of the Federal Trade Commission Rule (“FTC Rule”), is that a franchise is an oral or written agreement (or series of agreements) that contains each of the following three elements:

1)    The franchisor offers the right to distribute goods or services associated with or identified by the franchisor’s trademark or other commercial symbol;

2)    The franchisee is required to make any direct or indirect payment to the franchisor or its affiliates (except only a bona fide wholesale price for goods for resale); and

3)    The franchisor exercises significant control over, or offers significant assistance to, the franchisee (in some states this is defined as a marketing plan or as an ongoing commercial relationship between the parties).

4)    The parties’ written characterizations of the nature of the relationship are not binding. “A rose is still a rose, by any other name.”

Thus broadly defined, franchising is not limited to particular industries. However, some industries are subject to state and federal legislation dealing solely with the specific industry, and may be therefore exempt from general franchise or business opportunity statutes. Industries with specific franchise or dealer relation laws in the U.S. include:

• Motor Vehicle, Motorcycle, Recreational Vehicle, and Farm Implement, and Boat Dealers
• Beer & Wine & Liquor Distribution
• Gasoline and Petroleum Dealers and Distributors
• Cigarette, Wine, Beer and Liquor Distribution
• Soft Drink Bottlers

The U.S. state and federal business opportunity laws also vary in their scope, but generally require pre-offering disclosure and registration of offers of assistance or marketing plans to enable others seeking to establish a business, with or without a trademark license. State sales agents laws also provide protection to commissioned agents, regarding payment of commission and termination rights. When considering franchise laws, include in your research these related industry, dealerships, sales agent, and business opportunity laws.

Licensees May Be Franchisees

An important decision involving a software license and distributorship agreement illustrates the broad reach of certain state franchise laws. In the case of Modern Computers Systems, Inc. v. Modern Banking Systems, Inc., the Eighth Circuit court assumed for purposes of its decision that a computer software distributorship agreement was a franchise within the meaning of the Minnesota Franchise Act. The Act defines a franchise to be a relationship where a franchisee: (1) has a right to use the franchisor’s trade name or commercial symbol, (2) shares a “community of interest” with the franchisor, and (3) is required to pay a fee to the franchisor. As to the definitional element of use of a trade name, it was clear from the court’s discussion in Modern Computers that the plaintiff did not operate its business under the alleged franchisor’s trademark, but did use the trademark on its software products. Nevertheless, the court found that the plaintiff distributor had a likelihood of success on the merits and was entitled to an injunction protecting it from termination as a distributor, and remanded the case to the district court to make specific findings regarding whether all three criteria for finding a franchise were met.

However, certain trademark licenses with no significant control or assistance to the licensee (under the FTC Rule), and no “community of interest” under certain state laws, may not be franchises. Care must be taken in structuring all trademark licenses to avoid the franchise laws.

TIP: For a trademark license to not be a franchise: Eliminate all of the following from the relationship: control (except minimum control necessary to maintain the trademark), assistance, marketing plan, and continued financial interest (as defined by case law).

Dealers and Distributors May Be Franchisees

The analysis of whether a distributor or a dealer is a franchisee under law frequently focuses on whether there is a “franchise fee” being charged. The FTC Rule defines a franchise fee very broadly. The intention is to cover all required payments. The only exception is a payment made at a bona fide wholesale price for reasonable amounts of merchandise  for resale. If a licensor or supplier provides substantial training, support, and assistance, it may be difficult to argue that there are no “hidden” fees for these services, imbedded in the product prices.

Laws vary in the definition of a “franchise fee.” However, even without a “franchise fee” as defined above, certain business opportunity laws and special dealer laws will cover dealer agreements. Care must be taken in structuring all distribution agreements to avoid or comply with such laws.

TIP: For a dealership to not be a franchise, normally the only payment that can be paid to the supplier is a bona fide wholesale price for goods for resale. Business Opportunity and Dealer laws may apply.

Summary

Whether license or distributorship agreements can be made “franchise­proof” often depends upon the jurisdictions involved, and willingness to modify the agreement to exclude definitional elements under these laws.

Businesses must be especially careful to consider the applicability of franchise and similar laws in the following agreements and relationships:

(1)  Trademark license agreements, especially those with marketing assistance;

(2)  Dealer and distributorship agreements, especially those that involve use of a unified trademark on products or services, and that require payments to the supplier for anything other than products for resale;

(3)  Joint ventures and “strategic alliances”, especially those that involve use of a unified trademark;

(4)  While rather rare, retail subleases with co-branding using a unified trademark, and percentage rent, plus marketing assistance;

(5)  Business start up consulting offers, with or without permission to use the sellers’ trademark.

This rule is considered by many as the perfect answer for the company just starting out that needs to raise less than $1 million but can’t afford to go through the whole SEC registration process. Until they grow to a point where they can afford it, Rule 504 offers such companies an out:

• An exemption to raise up to $1 million
• No disclosure criteria
• Few general solicitation and resale restrictions
• No limit as to the number or type of investors

Actually, Congress’s original intent in 1982 for Rule 504 was to “set aside a clear and workable exemption for small issuers to be regulated by state blue sky requirements, but by the same token, to be subjected to federal anti-fraud provisions and civil liability provisions.” Rule 504 exemption is provided for almost any type of organization, including corporations, partnerships, trusts, or other entities. However, it is not applicable to companies already reporting to the SEC (subject to the ‘34 Act) or investment companies.

You Cannot Exceed $1 Million. The total offering amount under Rule 504 can be up to $1 million in a 12-month period, less the aggregate offering of all securities sold within 12 months before the start of a 504 offering. So, if a company has raised $100,000 in private money in the previous 12 months, it can still raise up to $900,000 without being accused of breaking the rules, or integration.

Generally speaking, there are no specific disclosure requirements under Rule 504 (disclosing what the company is about, what it intends to do, or who is connected with it). This means that, theoretically, an issuer can have a purchaser sign a subscription agreement and purchase stock without any information about the company being disclosed. However, the rule is dependent on the blue-sky laws of each state in which the securities are offered. This means that if a state’s blue-sky rules require disclosure, it must be provided regardless of Rule 504.

Rule 504 also provides that at least $500,000 of securities must be sold pursuant to a registration under a state’s securities law. Consequently, an offer must comply with the blue-sky laws of each individual state in which it is offered. In many states, this negates the effective simplicity of Rule 504 and the federal government’s intent, because many states’ blue-sky laws are more restrictive than Reg D.

A word of caution to the entrepreneur–regardless of the amount of disclosure the issuer is willing to provide, Rule 504 does not dismiss the issuer from the federal requirements, nor is there an exemption from the fraud provisions, including the areas of material omissions or misstatements. The penalties for noncompliance are severe, including monetary fines and mandatory jail sentences.

Number of Investors. With its limited disclosure requirements, Rule 504 also allows an issuer to sell securities to an unlimited number of investors. Theoretically, a company could raise $1 million by selling its stock at a penny a share to 100 million different investors. Obviously, the economics are not too attractive, but there’s no rule that stops an issuer from selling $500 blocks of stock to 2000 investors. Rule 504 is the only rule under Reg D that permits an unlimited number of investors.

A final note on Rule 504 is that the exemption provides for sales of securities of either debt or equity. This opens the door for combinations of both via convertible debentures. By way of explanation, convertible debentures are a debt issue (debenture) that is convertible to a preferred or, most commonly, common stock at some future date, usually at a predetermined price.

Alternate Exemptions

There are several other rules and exemptions besides the Reg D exemption discussed above. They are worth looking into and are discussed below under the headings of Regulation A and the Small Corporate Offering Registration (SCOR).

As pointed out in the last section, the principal advantage of an exemption from registration is that the buy-and-sell transactions can take place as soon as the parties decide to proceed. It eliminates the necessity of preparing and filing a prospectus with the SEC, and it saves legal costs, plus accounting and registration fees.

Exemptions under the Securities Act of 1933 (’33 Act) are listed as exempted securities and exempted transactions. They can save both time and money. The only drawback is they can take a legal genius to interpret them. They’re full of loopholes, and the courts have shown no qualms about ruling against the entrepreneur in their interpretations. Regardless, the end results should make them worth pursuing. But since the whole area of exemptions is so complex, the entrepreneur should not proceed without first seeking the advice of qualified legal counsel to determine the best form of exemption to apply for.

There are many types of franchise businesses offering you new opportunity, independence, growth, challenge, a comfortable income, prestige and security.  However, many important questions need to be answered, both by you and by the franchisor before you make a decision to buy.

There are over 2,500 franchise businesses being offered throughout the United States today.  The right one for you will depend on many factors such as the franchise fee; start up costs of the business, your financial goals, available business locations, business hours and experience required.

One important thing to know is that franchising is almost a sure thing.  Less than 4% of all franchises fail according to the U.S. Department of Commerce.  That is amazing because the failure rate for non-franchise businesses is as high as 85%.

What kind of franchise do I buy?

There are two basic types of franchisor: the infant franchisor and the mature franchisor.  Both have their advantages and disadvantages.  Let’s take the infant franchisor.  The franchise fees and royalties are usually lower.  Also, this franchisor may offer area development agreements which allow the franchisee to open multiple franchises within a defined territory. Area development agreements designate a specific number of franchises but additional units may be opened without additional franchise fees.

The more mature franchisor may only offer single franchises at a higher cost per unit. However, each franchise may have greater earning potential up front because of name recognition. A mature franchisor usually offers time tested training and well developed support systems to the new franchisee.

It is important to understand that a franchise is a contractual relationship.

Most people believe that a franchise consists of the concept or idea that is being offered, the brick and mortar business, the operations of the business and a variety of other things.  However, when you purchase a franchise you are really buying a contractual agreement defining the relationship between you and the franchisor. This agreement may be binding for twenty years or more.

The value or worth of the franchise is determined by what is contained in the agreement.  Too many buyers get caught up in the “sizzle” of the business and fail to understand the obligations they are committing to.  Don’t overlook the fact that you are buying an agreement that you must live up to for a long period of time..

The franchisor is required by the Federal Trade Commission (FTC) to furnish a potential buyer with a full disclosure document at the first personal meeting.

The disclosure will provide information about the franchisor and the franchise business.  Included will be the business background of the franchisor; names of the officers, directors and key personnel; the initial fees and costs of getting into the business; obligations of both the franchisor and franchisee before and after the business is opened; terms and conditions of the franchise; a copy of the actual franchise agreement and many other important matters.

Never rely on verbal commitments or promises from a franchisor or franchise broker.

Study the agreement very carefully and understand what it says.  Question anything you don’t understand and ask for a written explanation. Don’t rely on verbal interpretations or explanations.  Protect yourself by getting everything in writing, especially promises, projections or commitments that are not in the franchise agreement.  If it’s not in writing, it won’t stand up in court!

Profran Consultants are profession franchise consultants who understand what you are experiencing and know how confusing the process might be for some. Our consultants want to make the experience a pleasant one by educating you in the procedures of search for the right franchise, understanding what a franchisor wants from you and coaching you in the process that allows you to have a better chance of succeeding in by accepted. Most people don’t realize that franchises are not sold but awarded. You cannot buy a franchise, but instead be licensed to operate the business under the franchisor’s trade name and marks.

All franchisor’s want you to follow various procedures which includes completion of a confidential franchise application form, go through extensive interviewing and make a decision within a reasonable period of time, sign a franchise agreement and pay the initial franchise fees. It might feel like a lot of pressure and stress but frankly every franchisor basically requires the same thing from every franchise candidate.

Profran Consultants can make the experience more enjoyable and be at your side while you research the business opportunity.

All private investors are looking for that “home run” investment opportunity that will provide them with a return on investment of ten times or more the initial investment within a short period of time. How often does a home run occur? More often than most private investors realize.

When the Body Shop needed a small amount of seed capital to launch the distribution of their body care products, Ian McGlinn invested $8,000 in the company.  He knew the potentials were there for a home run, but not the magnitude of the potentials. When he exited the company he had earned $80 million.

When Steve Jobs, Co-founder of Apple Computer needed funding and found an individual who invested $91,000 no one would have thought that years later that investor would realize $154 million. When Thomas Alberg wrote his check for $100,000 to Amazon.com in their conceptional stages, there was a feeling that he was on to something big. His return was over $26 million years later.

What are the possibilities of you finding a company that is in a startup mode that you can invest in that can give you the kind of return that others have enjoyed? They are out there and if you understand and know how to evaluate and rely on your intuition you too can reap the rewards and prosperity of a private investor.

 Most private investors want to put their money in a company that has strong management leadership, tremendous growth potentials, pays reasonable dividends and has an exit strategy in place that allows a pay off that is satisfactory to the investor within an acceptable time period. Isn’t it the dream of investors to find a company that meets those high standards?

In Jacksonville, Florida, there’s such a company offering an opportunity to become an equity member that could be what you’ve been looking to find. The company has been in research and development for one and one half years during which time it has fine tuned its system of business, and found the right marketing procedures and direction to launch the company Internationally with a simple program that has the potential to earn tens of millions of dollars within a relatively short time span. The company is using elements that will assure its success and expansion in a cost effective manner. Those elements are the Internet, software programs, an acceptable and needed service, franchising and affiliate network.

In brief, I’ll describe the program and company operations. Skadoit, LLC has created and established an online computer backup program (storage of data) and service that can be used by individual computer users (PC or Mac) up to large corporations with thousands of computers. The marketing will be performed through a network of licensed franchisees who in turn establish an affiliate network they manage and oversee. An average franchisee is expected to establish affiliates numbering into the thousands. An affiliate will promote the services of Skadoit through its daily business usually using banner advertising on a business web site. There are no costs to an affiliate and they are paid a commission for each subscriber of the service of Skadoit. Franchisees are responsible for paying their affiliates from the revenues they earn as a franchisee which is fifty percent of the published subscriber price of $59.98 for standard service and $129.95 for premium service annually. Skadoit retains the other fifty percent. Here’s where it becomes exciting. Skadoit, LLC expects that an average franchisee through its affiliate program will produce upwards to 1,000 subscribers monthly. That means the company is receiving from the network of one franchisee in excess of $34,970 each month. Looking at the income annually, that’s over $419,000. Now for the really good news, this is a residual income that should be realized year after year so long as the subscribers continue to use the services of Skadoit, LLC.

Skadoit, LLC intends to establish thousands of franchises within the United States over the next few years through an aggressive marketing campaign. Most of the marketing will be done through the media of television to accomplish a threefold purpose of 1) branding the name SKADOIT, 2) introducing subscribers to SKADOIT, and 3) attracting quality affiliates.

Once the company has launched the program and begins to be noticed as a significant player in the industry, someone is going to do the numbers and then comes the exit strategy that all investors want to hear about. Someone is going to purchase Skadoit for a large sum of money. What will that be? Skadoit, LLC is expecting the offer to exceed $50 million. That could mean for the investor a return of no less than 10 times. That’s considered a home run in the investment community.

If this sounds interesting enough and you would consider becoming an equity member in Skadoit, LLC then you’ll want to review our memorandum and fill out the investment subscription and reserve your position.

The minimum investment is $10,000 with a total offering of $1,000,000 or 20% of the membership units.

You can learn more about Skadoit on our web site www.skadoit.com or call 904-215-8989 Ext 306.

There is no doubt, anyone investing with a franchisor that realizes 10, 15 even 20 times a return would be extremely happy if it took place within a 24 to 36 months period of time. Profran Consultants can assist you in sharing private information about several companies that are presently offering equity through a private placement offering which is in compliance with Security & Exchange Commission regulations.

You can learn how the program works by going to Profran Consultants Affiliate Program or Go directly to our Register Page to sign up.