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Restrictions in Franchising

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Restrictions in Franchising

By FranchiseKing, Guest Blogger
Published: February 6, 2013

If you’re thinking of becoming the owner of a franchise-type of business, there’s something you need to know about franchising…and you may not like it.

Now, what I’m about to share probably won’t be a game-changer if you’re really bent on buying a franchise, but you need to have as much factual information on this business model before you invest in one.

Here goes:

You’re going to have certain restrictions placed on you.

And according to “Buying a Franchise: A Consumer Guide” published by The Federal Trade Commission, “These kinds of restrictions may limit your ability to exercise your own business judgment in operating your outlet. That said, if the franchisor does not limit the territory where each franchisee can sell, the franchisor and other franchisees may compete with you for the same customers, either by establishing their own outlets, or by selling to customers in your area through the Internet, catalogs, telemarketing, and the like.”

Please read it again.

Surprises Not Included

One of the best parts of franchising today has to do with transparency.

Years ago, you would have to drive, walk or ride your bicycle down to your local library, and spend hours just searching for information on franchising. I’m not even talking about information on specific franchise opportunities…just basic information on a franchise business works!

Things are vastly different now, obviously. Within minutes, you can get information on the franchise business model* just by using the search engine of your choice. There are even vast amounts of information readily available about the Franchise Disclosure Document (FDD).

As a matter of fact, Item #8 (there are 23 items contained in the FDD) deals with the subject of this guest blog post: restrictions.

Item #8

Restrictions on Sources of Products and Services

This section tells whether the franchisor limits:

1.      Suppliers from whom you may purchase goods

2.      Goods or services you may offer for sale

3.      Where you can sell goods or services

4.      Use of the internet to sell goods or services to customers in and out of your territory and the right of the franchisor (or other franchisees) to use the Internet to solicit customers or to sell in your territory

According to the FTC, these kinds of restrictions may limit your ability to exercise your own business judgment in operating your outlet. That said, if the franchisor does not limit the territory* where each franchisee can sell, the franchisor and other franchisees may compete with you for the same customers, either by establishing their own outlets, or by selling to customers in your area through the Internet, catalogs, telemarketing and the like.

The FDD contains very specific things that have to do with the four items listed above. Make sure you understand what, where and how you can and cannot sell your products and services.

If you engage the services of a competent franchise attorney like I’ve been suggesting over the years, you’ll be able to have a complete understanding of any restrictions that will be placed on you as you move towards becoming your own boss.

* Non-US Government links

 

About the Author:

Joel Libava

Guest Blogger

The Franchise King®, Joel Libava, is the author of Become a Franchise Owner! and is a franchise ownership advisor. He shows people how to carefully choose and properly research franchises.   

Comments:

To some content, The restrictions in franchising is very necessary and important. And this article show us the detailed and useful information. Keep on, I will follow you!
Great article franchise king. The restrictions mentioned are well enough to explain difficulties faced during buying a franchise. This post was edited to remove a link. Please review our Community Best Practices (http://www.sba.gov/community) for more information about how best to participate in our online discussions. Thank you.

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