Copyright laws (an analysis)

Automatic Copyright
Under the present copyright law, copyright exists in original works of authorship created and fixed in any tangible medium of expression, now known or later developed, from which they can be perceived, reproduced, or otherwise communicated, either directly, or indirectly with the aid of a machine or device. In other words, copyright is an incident of creative authorship not dependent on statutory formalities. Thus, registration with the Copyright Office generally is not required, but there are certain advantages that arise from a timely registration.

Copyright Notice
The 1909 Copyright Act and the 1976 Copyright Act as originally enacted required a notice of copyright on published works. For most works, a copyright notice consisted of the symbol , the word “Copyright,” or the abbreviation “Copr.,” together with the name of the owner of copyright and the year of first publication. For example : ” Joan Crane 1994″ or “Copyright 1994 by Abraham Adams.”

For sound recordings published on or after February 15, 1972, a copyright notice might read “(P) 1994 XYZ Records, Inc.”

Advance permission from, or registration with, the Copyright Office is not required before placing a copyright notice on copies of the work or on phonorecords of a sound recording. Moreover, for works first published on or after January 1, 1978, through February 28, 1989, omission of the required notice, or use of a defective notice, did not result in forfeiture or outright loss of copyright protection.

Works Already in the Public Domain
Neither the 1976 Copyright Act, the Berne Convention Implementation Act of 1988, the Copyright Renewal Act of 1992, nor the Sonny Bono Copyright Term Extension Act of 1998 will restore protection to works that fell into the public domain before the passage of the laws. However, the North American Free Trade Agreement Implementation Act (NAFTA) and the Uruguay Round Agreements Act (URAA) may restore copyright in certain works of foreign origin that were in the public domain in the United States. Under the copyright law in effect prior to January 1, 1978, copyright could be lost in several situations. The most common were publication without the required notice of copyright, expiration of the first 28-year term without renewal, or final expiration of the second copyright term. The Copyright Renewal Act of 1992 automatically renews first term copyrights secured between January 1, 1964, and December 31, 1977.
Scope of Exclusive Rights under Copyright
The present law has changed and enlarged in some cases the scope of the copyright owner’s rights. The new rights apply to all uses of a work subject to protection by copyright after January 1, 1978, regardless of when the work was created.

Absence of Copyright Notice
For works first published before 1978, the complete absence of a copyright notice from a published copy generally indicates that the work is not protected by copyright. For works first published before March 1, 1989, the copyright notice is mandatory, but omission could have been cured by registration before or within 5 years of publication and by adding the notice to copies published in the United States after discovery of the omission. Some works may contain a notice, others may not. The absence of a notice in works published on or after March 1, 1989, does not necessarily indicate that the work is in th e public domain.

Unpublished Works
No notice of copyright was required on the copies of any unpublished work. The concept of “publication” is very technical, and it was possible for a number of copies lacking a copyright notice to be reproduced and distributed without affecting copyright protection.

Foreign Editions
In the case of works seeking ad interim copyright, copies of a copyrighted work were exempted from the notice requirements if they were first published outside the United States. ["Ad interim copyright" refers to a special short term of copyright available to certain pre-1978 books and periodicals.]
Accidental Omission

The 1909 statute preserved copyright protection if the notice was omitted by accident or mistake from a “particular copy or copies.”

Unauthorized Publication
A valid copyright was not secured if someone deleted the notice and/ or published the work without authorization from the copyright owner.

Sound Recordings
Reproductions of sound recordings usually contain two different types of creative works: the underlying musical, dramatic, or literary work that is being performed or read and the fixation of the actual sounds embodying the performance or reading. For protection of the underlying musical or literary work embodied in a recording, it is not necessary that a copyright notice covering this material appear on the phonograph records or tapes on which the recording is reproduced. As noted above, a special notice is required for protection of the recording of a series of musical, spoken, or other sounds that were fixed on or after February 15, 1972. Sound recordings fixed before February 15, 1972, are not eligible for federal copyright protection. The Sound Recording Act of 1971, the present copyright law, and the Berne Convention Implementation Act of 19 88 cannot be applied or be construed to provide any retroactive protection for sound recordings fixed before February 15, 1972. Such works, however, may be protected by various state laws or doctrines of common law.

Artists, writers, innovators, and entrepreneurs…in fact creative and business people from all backgrounds; mostly those starting out, but even some with a level of experience in their field behind them, have at some point or another realised they’ve had misconceptions about what copyright is, how it works, for what types of creative work, and what it can do for them.

So, let’s get started, and perhaps with the most obvious questions anyone may have about copyright; what is it, and why does it exist in the first place?

Let’s start with the latter question first.

Why copyright exists

Imagine this scenario; you build a cottage, say, to your own design. It’s a beautiful, Tudor-style, thatched roof affair, with a small, well-kept garden, and a breath-taking view of rolling, verdant green hills offering spectacular sunsets in the evening. Now imagine someone finds out about your unique, very attractive cottage one day, and moves in while you’re out. You come home to suddenly find you can’t get back in, and this squatter inside is claiming they own your house, that they built it even, and worse, they’ve started renting out the back bedroom for a pretty penny. To cap it all, they’re now building duplicate cottages matching your design down the road to sell and earn even more money. Now imagine there was no law in existence to give you the opportunity to re-claim ownership of your property and no means to stop the usurper or win restitution from them for their actions.

Transfer this – admittedly crude – analogy to creativity, and that’s why copyright exists.

I like how the Irish Patents Office(1) puts it on their website with regards the Nature of Copyright:

“First, persons who create works of the intellect or who invest in their creation and dissemination are entitled as a matter of human right to secure a fair return for their creativity and investment.

Secondly, unless the rights of creators and investors to a fair return are supported, the community as a whole would be impoverished by the fact that, in many cases, these works would not be created or developed.”(2)

Our civilization progresses through creativity and innovation. But for creators to create, they need to eat, they need to live, earn money, receive recognition for their work and the stimulus to keep striving when the going gets tough. Copyright exists therefore to make this happen and help the innovators earn revenue from their creations. Copyright exists to promote creativity and help creative people live from their creativity. Copyright exists because it makes creative and business sense for copyright to exist. If a writer earns money from their work, they can earn the funds to keep writing. If an artist earns money from the licensing and manufacturing of images of artwork, they have income so they can invest their time productively in more projects. Furthermore, copyright exists to encourage innovation and prosperity, for society as a whole as well as for the individual doing the innovating.

Take copyright away and you effectively tie the hands behind creatives’ backs. Imagine a world culturally, creatively, industrially and economically deprived because its innovators weren’t given the reward for – and the power to protect the use of – their endeavours.

With that in mind, lets put my cottage analogy into proper context now; you’re a creative person, aren’t you? Imagine every time you created something, someone could come along and copy it, claim it as their own and very likely make money from it, and without fear of consequences because there was no law making their actions punishable. You’d very soon give up creating wouldn’t you? What’d be the point of all that hard work when others could reap the credit and the reward?

Fortunately for us, that’s not how it is in the real world. Lets read again what the Irish Patents Office says; that it’s a “…human right to secure a fair return for their creativity and investment.” I say again, nicely put.

So that’s why copyright exists.

But just what is copyright?

Copyright is…

If you consider my crude cottage analogy again; it essentially establishes what copyright is… a property right. But a property right that applies, not to land or buildings or vehicles, but to products of the human mind… of our intellect. Creative products, such as literary, dramatic, musical or artistic or filmic work.

And what can one do with this “intellectual property” right?

Well, copyright has some similar but also different entitlements to other forms of property right, specifically allowing the copyright owner (or owners) to:

copy, lend and distribute their work license others (i.e. grant written permission) to use the copyright owner’s work adapt their work or licence others to do so (e.g. adapt a book into a movie) sell their created work – their intellectual property – to others, and, importantly… have powers to stop wrongful infringement of those rights by third parties, i.e. the copying and exploitation of the copyright owner’s work without their permission, as well as… obtain recompense in the form of compensation or damages for infringement where loss of revenue has been discovered.

This applies to a copyright owners work, whether or not it’s been published, exhibited or otherwise released to the public for their consumption.

Not only this though…

Moral Rights in copyright

A creator and commissioner of a copyrighted work is also entitled under copyright to other rights relating to their work. Called “Moral Rights”, these are:

the right to be identified as the author (or artist, or photographer, or composer, or director etc.), and to stop a work being falsely attributed to them the right not to have their work subjected to derogatory treatment (alteration, re-arrangement or deletion) by others; “derogatory treatment” being where the resulting work is mutilated, distorted, and can damage the creator/authors reputation the right to privacy when it comes to certain photographs and films (e.g. a commissioner of private photos has the right not to have them published or exhibited to the public where the photos become copyright works)

Here’s some examples of these above three points:

I’ve asserted my moral right to be identified as the author of this article; a right I have under law to do so(3). Were this a fictional book, and it was adapted into a movie, I’d also have the right to be identified in the movie as the author of the source novel – unless you set aside the right. Conversely, Alan Moore, whose now legendary unhappiness at the treatment of adaptations of his graphic novels and how he feels they’ve reflected badly on his original work, has prompted him to demand his name be removed from the movies credits, such as Watchmen.

If for some reason, J K Rowlings Harry Potter series of books had been knowingly and deliberately credited as my work and not hers by someone else, both she and I could stop it, due to false attribution.(4)

If during the editing of this book, I’d felt a third party (an editor, a publisher or printer) had done a hatchet job on all my hard work, I could not only let it be known how unhappy I was with this mistreatment, but I’d have the right to stop it too.(5)

Finally, the photo-por traits of my significant other and I which we paid a professional photographer for, hang on the walls where we live… and nowhere else without our say-so.(6)

See how Moral Rights work?

Now I need to mention there are however exceptions to Moral Rights; they can’t be asserted when copyrighted works are computer programs or computer-generated work (created without human intervention), or for a typeface design. Also, if the creator/author hasn’t asserted their right to be identified as the creator/author if that right applies, the Moral Right hasn’t been violated. In addition, if the creator/author works for an employer who does/will own the copyright of the work you produce, you will not have this right either (more on this “Work Made For Hire” later).

Who owns copyright

Now that we know the “what” and “why” of copyright, lets find out the “who”; just who this “copyright owner” I’ve mentioned is:

The copyright owner is the person or persons who created the work that is copyrighted.

You might well have guessed that already.

Under copyright law then, creatives are usually the first person(s) granted ownership of copyright over the work they’ve created, as outlined above.(7) So if you’re someone who’s created a copyrighted work, the rights of ownership to that copyrighted work belong to none other… than you.

Lets be clear about this; no-one else but you, the creator of the copyrighted work, has these rights; not your mum, your partner, not nice Mrs Miggins down the road. (Yes, not even her either.) They’re yours and yours alone (unless the created work has been a collaborative effort).(8) Exclusively. Nor will those rights be anyone else’s unless and until you as the rights owner (sometimes called “rights holder” too) grants permission of usage – licenses – or gives away/sells – assigns – those rights.

Sounds good doesn’t it? Works for me.

Having said that tho ugh…

There’s ownership and then there’s Ownership

People can get the wrong end of the stick when they hear about copyright ownership, so I thought – now that’d I’ve identified what copyright ownership is – it’d be worth clarifying what it isn’t.

Now where you live you have products like DVDs, books and CDs all over, and you own them, right? I mean you paid good money for them, right? Sure you did. So you’re their owner.

But does that mean you own the copyright subsisting in those products?

No, of course you don’t.

Its the author and/or the publisher/distributor who retains the copyright. There’s a difference then to owning a copy of a copyrightable work, and owning the copyright of that work itself. If you’re forking out cash for, say a CD, you’re buying ownership of that CD copy of that recording artists album, not ownership of the master recordings themselves, nor the right to produce copies of the CD you purcha sed either.

If more than one author or creator has been involved in producing the work, then joint copyright ownership applies. Song writing partnerships are a classic example, wherein by virtue of having co-written a song, they each become the joint copyright owners.

Then there’s being hired to produce some work.

Were you hired? Check your copyright

We have all been employees, and many of us have been hired as freelancers. And in that time I guarantee you, we put something together, wrote or drew something for our employer. Does this mean according to what I’ve outlined above that copyright became ours?

Not necessarily.

You see, if we prepared this work as part of the duties of our employment, or if it was commissioned from us, if we’re part of team employed on a project, or if in fact, we’re building something under a “work made for hire” agreement, then in all likelihood the copyright will be our employers, not ours.

So are you in employment right now and creating works the rights to which you assumed were yours? Then take a look at the employment contract you signed with your employer. There are likely to be provisions in there which cover this question of ownership. Or are you yourself commissioning work from others? Then look at the purchase orders you send out or agreements you sign. Are there clauses in the terms and conditions which cover intellectual property rights for people you hire, so that those rights are yours upon payment?

So there we are; that’s what copyright is, its purpose, and who gets to use it.

To learn more about copyright, please read the FREE copyright companion by clicking here.

References:

(1) Irish Patents Office – “Copyright – A brief history”

(2) Irish Patents Office – “Copyright – A brief history”

(3) The Copyright, Designs & Patents Act 1988, Chapter IV Moral Rights, sections 77-79.< /p>

(4) The Copyright, Designs & Patents Act 1988, Chapter IV Moral Rights, section 84

(5) The Copyright, Designs & Patents Act 1988, Chapter IV Moral Rights, sections 80-81

(6) The Copyright, Designs & Patents Act 1988, Chapter IV Moral Rights, section 85

(7) The Copyright, Designs & Patents Act 1988, Chapter I, Subsistence, Ownership and Duration of Copyright, section 11

(8) If more than one author or creator has been involved in producing the work, then joint copyright ownership applies. Song writing partnerships are a classic example, wherein by virtue of having co-written a song, they each become the joint copyright owners.

What is Copyright?

Copyright is concerned with protectingliterary, artistic or scientific work of the human intellect. These include books, wallpapers, pamphlets, catalogues, maps, guides and other writings, music, works of the fine arts such as paintings and sculptures, lectures, addresses, and works of like nature, Dramatic, dramatic musical works, Chronographic works, dumb show, Musical composition, Architecture, sculpture, drawings, engravings, lithographic, phonographic works, Translations, adaptations and technology based works such as computer programs and electronic databases.

Copyright is based on the concepts of originality and reproduction of the work in any material form. Therefore the main criterion for the protection of a work under copyright laws is that it should beoriginal (Not copied). Accordingly copyright laws confers the exclusive right to the owner of the original literary, artistic or scientific work to use or authorize others to use it for its reproduction, public performance, translation and adaptation. It is to be noted that copyright protects a work that is the expression of thought based on some idea, and not for the idea as such. For example if I have the idea of painting sunset over the sea, anyone else can use the same idea, which is not protected. But when I actually produce my painting of sunset over the sea the painting itself is expression, and that is protected.

Copyright provides a bundle of rights. The most typical are the following: the right to copy or otherwise reproduce any kind of work; the right to distribute copies to the public; the right to rent copies of at least certain categories of works (such as computer programs and audiovisual works); the right to make sound recordings of the performances of literary and musical works; the right to perform in public, particularly musical, dramatic or audiovisual works; the right to communicate to the public by cable or otherwise the performances of such works and, particularly, to broadcast, by radio, television or other wireless means, any kind of work; the right to translate literary works; the right to rent, particularly, audiovisual works, works embodied in phonograms and computer programs; the right to adapt any kind of work and particularly the right to make audiovisual works thereof.

Copyright is a protection that covers published and unpublished literary, scientificand artistic works, musical work, cinematographic films, software etc. Whatever be theform of expression, such works should be fixed in a tangible or material form. Thismeans that if you can see it, hear it and/or touch it – it may be protected.

Originality:

Originality in relation to a work means that it is the authors own creation and is not copied totally or essentially from another work. Originality is required by copyright law for the composition of the contents as well as the form of their expression , but not in relation to mere ideas, information or methods embodied in the work. Originality is not to be confused with novelty: the pre-existence of a similar work unknown to the author does not affect the originality of an independent creation. In the case of a derivative work, originality resides in the individual method of adaptation of the pre-existing work as referred to, among others, in Article 9 of the Mexican Law.

The requirement of originality as a condition of copyright protection is expressed in many national copyright laws by qualifying protectible works as original. This sense of the attribute original should not be confused with the meaning of the term when used to oppose original works as pre-existing works to derivative works.

LITERARY, ARTISTIC, MUSICAL AND SCIETIFIC WORKS

Strictly speaking, literary work is writing of great value from the standpoint of the beauty and emotional effect of its form and content. From the point of view of copyright, however, a general reference to literary works is commonly understood as meaning all sorts of original written works, be they of a belletristic, scientific, technical or merely practical character, irrespective of their value or purpose.

But an artistic work (or work of art) is a creation intended to appeal to the aesthetic sense of the person perceiving it. The category of artistic works comprises paintings, drawings, sculptures, engravings, and in several copyright laws also works of architecture and photographic works. Although in some countries musical works are considered to be a special category of protected works, in many copyright laws the notion of artistic works comprises musical works too. Works of applied art are in most legislation likewise included in this category.

Musical works are also protected by copyright. Such works comprise all kinds of combinations of sounds (composition) with or without text (lyric or libretto), to be performed by musical instruments and/or the human voice. If the work is also intended for stage performance, it is called a dramatico-musical work. Music usually forms part of cinematographic works too. The author of a musical work is generally referred to as the composer. The most frequent uses of musical works for which protection is granted under copyright laws are reproduction (as sheet music or recording), performance, broadcasting other forms of communication to the public, arrangement and use as background music. Copyright laws making protection subject to fixation in material form only protect music written in musical notation or recorded appropriately

Another area of importance is scientific works. Scientific work deals with problems in such a way as to correspond to the requirements of scientific approach. The coverage of this category of works is not at all restricted to the field of natural sciences or to literary works of a scientific character. A computer program could under certain circumstances also be a scientific work. In copyright laws, a general reference to scientific works is often understood as meaning all kinds of works other than artistic or fictional, such as technical writings, reference books, popular scientific writings, or practical guides. However, scientific works protected by copyright do not comprise scientific inventions, discoveries, research work or scientific undertakings.

Why to protect a work by copyright?

Even though the work is protected by the fact of its creation some sort ofproofis needed which can be obtained by the registration of the work under copyright law of the nation. In civil-law countries, the work is typically protected from the moment of its creation. On the other hand under common law you need have to have it fixed in some way, perhaps written down or recorded on tape. It implies thatthe work has to be fixed before it is protected. The difference here is really not that important, it is basically a question of the kind of proof you would need in a court in the very rare cases of works that are not fixed in the normal way.

There are no international copyrights that enable you protect your work throughout the world. However, most countries are members of the Berne Conventionand the Universal Copyright Convention (UCC), which allow you to protect your works incountries of which you are not a citizen or national. In Berne Convention countries, all foreign owners of rights or authors from other Berne countries qualify for protection under the Convention without any formalities, so theres no need to make any registration. Under these treaties, the followingworks may be protected (i) both unpublished and published works of an author who is anational or resident of a country that is a member of these treaties; or (ii) publishedworks, with permission, of an author who is not a national or resident of a country thatis a member of these treaties. In this case a work may be considered simultaneouslypublished in several countries if it has been published in two or more Berne Unioncountries within 30 day s of its first publication

Berne Convention:

Berne convention established in 1886 is the oldest international convention concerning copyright. The Convention, concluded in 1886, was revised at Paris in 1896 and at Berlin in 1908, completed at Berne in 1914, revised at Rome in 1928, at Brussels in 1948, at Stockholm in 1967 and at Paris in 1971, and was amended in 1979. The Convention is open to all States. Instruments of ratification or accession must be deposited with the Director General of WIPO. It is to be noted that WTO Members, even if they are not party to the Berne Convention (e.g., Indonesia), must comply with the substantive law provisions of the Berne Convention, except that WTO Members not party to the Berne Convention are not bound by the moral rights provisions of the Berne Convention. It should also be noted that developing and transition countries may, at least until 2000, delay the application of most of the obligations provided for in the TRIPS Agreement (Article 65). Naturally, States party to the Berne Convention cannot delay the application of their obligations provided for in the Berne Convention. The Berne Union has an Assembly and an Executive Committee. Every country member of the Union which has adhered to at least the administrative and final provisions of the Stockholm Act is a member of the Assembly. The members of the Executive Committee are elected from among the members of the Union, except for Switzerland, which is a member ex officio. On January 1, 1997, the Executive Committee had 30 members.

According to this convention the contracting states should not show discrimination to works from other member countries. Article 2 of Berne convention gives a list of works eligible for protection, which covers all literary, artistic and scientific works. Protection is not available to computer programs and multimedia productions according to this convention, which are latest developments. According to Berne convention a work is protected in all the member countries by virtue of its creation itself. Berne convention provides a minimum protection for the work that is lifetime of the author plus 50 years but article 9(2) provides the free use of the protected work in certain cases.

Copyright act in India provides the protection for a period of life time of the author plus 60 years.

COMPUTER PROGRAM & MULTIMEDIA PRODUCTIONS

Computer programs are a good example of a type of work which is not included in the list contained in the Berne Convention, but which is undoubtedly included in the notion of a production in the literary, scientific and artistic domain within the meaning of Article 2 of the Convention; indeed, computer programs are protected under the copyright laws of a number of countries, and under theTRIPSAgreement. A computer program is a set of instructions, which controls the operations of a computer in order to enable it to perform a specific task, such as the storage and retrieval of information. A computer program is produced by one or more human authors but, in its final mode or form of expression, it can be understood directly only by a machine (the computer), not by humans.

Another, recent example of a type of work not listed in Article 2 of the Berne Convention, but which is clearly included in the notion of a creation in the literary, scientific and artistic domain, is multimedia productions. While no acceptable legal definition has been developed, there is a consensus that the combination of sound, text and images in a digital format, which is made accessible by a computer program, embodies an original expression of authorship sufficient to justify the protection of multimedia productions under the umbrella of copyright.

WIPO Copyright Treaty (WCT)

In December of 1996, a Diplomatic Conference was held, which concluded the newest international agreement protecting copyright – the WIPO Copyright Treaty (WCT). This treaty responded to the need to protect works when transmitted by digital means, including via the Internet. The subject matter to be protected through copyright by the WCT includes that ofcomputer programs, whatever may be the mode or form of their expression, and compilations of data or other material, (databases) in any form, which by reason of the selection or arrangement of their content constitute intellectual creations. Therights of authors include the previously mentioned rights ofdistribution,rental, andcommunication to the public, and it is made clear that the right of communication to the public covers the transmission of works through digital networks such as the Internet. These rights, as is normal, are subject to certain limitations and exceptions.

RELATED RIGHTS

Related rights also termed as neighboring rights provide legal protection to the interest of the persons or organizations that add substantial creative, technical or organizational skill in the process of bringing a work available to public. The protection is available to performing artists; producers of phonograms and broadcasting organizations from unauthorized exploitation of their rights resulted from the financial and organizational resources that they add to the copyright protected work. Protection under related rights also extends to broadcasting of live events and folklores.

Performers (singers, actors, dancers, musicians etc.) are eligible for protection because of their creative interpretations giving life to the work. The protection for such performance is 20 years from the end of year in which the performance took place according to Rome convention. But the term is 50 years according to TRIPS agreement. Unauthorized fixation, broadcasting etc. can be prevented by virtue of the protection granted.

Producers of phonograms need protection because they are the most immediate victims of piracy. They have the right to authorize and prevent direct or indirect reproduction, importation and distribution of their phonograms. The protection is for 20 years from the end of year in which the fixation is made according to Rome convention and is for 50 years according to TRIPS provisions.

Protection is also available to broadcasters for the investments and technical skill they put together so that the unauthorized re-broadcasting and recording could be prevented. The protection is for 20 years from the end of the year in which the broadcast took place according to both Rome convention and TRIPS agreement. The WIPO Performance and Phonograms Treaty (WPPT) that entered into force on May 20, 2002 offer protection to economic and moral rights as regards exploitation in digital form including that over Internet.

What are the Rights bestowed by Copyright?

The copyright holder has a set of different rights, which are governed partly by the Berne Convention, where there are minimum rights, and partly by national law, which often takes the rights even further. There are basically two types of rights 1)economic rights, which allow the owner of rights to derive financial reward from the use of his works by others, and 2)moral rights, which allow the author to take certain actions to preserve the personal link between himself and the work.

Moral rights:

These rights comprise the right to decide on disclosure of the work; the right to claim authorship thereof (to have the name of the author and the title of the work mentioned in connection with the use of the work); the right to prevent the mention of the authors name if the author of the work wishes to remain anonymous; the right to choose a pseudonym in connection with the use of the work; the right to object to unauthorized modification of the work, to mutilation thereof and to any derogatory action in relation thereto; the right of withdrawal of the work from public use against payment of compensation for damages caused to any person who has previously received proper authorization to use the work. Most of the copyright laws recognize moral rights as an inalienable part of the copyright, distinct from the so-called economic rights. Some laws also provide for moral rights of performers to protect them against distortion of their performances and grant them the right to claim the mention of their name in connection with their performances.

Economic Rights

These are the rights providing financial benefits to the author. They imply as a rule that within the limitations set by the copyright law, the owner of the copyright may make all public use of the work conditional on payment of remuneration. Economic rights comprise, in particular, the faculty to do or to authorize the doing of any of the following: to publish or otherwise reproduce the work for public distribution; to communicate it to the public by performance, by broadcasting or by wire; to make translations or any kind of adaptation of the work and to use these in public.

The right of reproduction is the basic right of the right holder to prevent others from making copies of his/her works in printed form, CD ROM etc. The right holder can also authorize distribution of copies of the work by assigning the right. But the above right doesnt prevent individuals to make single copies of the work for private, personal and noncommercial purposes.

Therights of Public performance, Broadcasting and Communication to Public are another bundle of rights owned by the copyright holder. The rights include prevention of others from the above acts and the right to authorize it. Public performance means the performance not only in a public place but also where a substantial number of persons outside the normal circle of a family and its closest social acquaintances is present i.e. the presentation of a play in a theatre or an orchestra performance of a symphony in a concert hall etc. Broadcasting covers the emission by wireless means within a range and Communication to public is that by means of wires and cables.

Another right isthe right of translation and adaptation. Translation is the expression of a work to a different language and Adaptation is the modification of a work to create another work such as adapting a novel for making a cinema. In order to reproduce and publish a translation or adaptation authorization must be obtained from the owner of the copyright in the original work even if the owner of the copyright in the translation or adaptation grants permission.

PECULIARITIES OF COPYRIGHT

Copyright doesnt prevent individuals to make single copies of the work for private, personal and noncommercial purposes.

In order to reproduce and publish a translation or adaptation authorization must be obtained from the owner of the copyright in the original work even if the owner of the copyright in the translation or adaptation grants permission.

Copyright offers protection for a minimum period of lifetime of the author plus 50 years in almost all the countries

Both civil and criminal remedies are available against infringement and piracy of the protected work. Copyright is not territorial.

Ownership of copyright and licensing

Owner of copyright is generally understood as being the person to whom the copyright in a work belongs. The original owner of copyright is as a rule, and except for a few special cases, which vary according to the different copyright laws,the author, who acquires copyright by virtue of law upon creation of the work. Owners of copyright may also be the heirs of the author as a result of inheritance. Some copyright laws allow for assignment of copyright in whole or in part and thereby the assignee becomes owner of the copyright in whole, or of the part assigned

Licensing in the field of copyright is the authorization (permission) given by the author or other owner of copyright (licensor) to the user of the work (licensee) to use it in a manner and according to conditions agreed upon between them in the pertinent contract (licensing agreement). Unlike an assignment, a license does not transfer ownership; it only constitutes a right or rights to use the work under the copyright in it, which remains with the licensor, though restricted according to the scope of the license granted. The license is either exclusive or non-exclusive; in the latter case, the owner of the copyright may lawfully grant similar licenses to other licensees too. Often the licensee also obtains the right to exploit his license by allowing other persons to use the work correspondingly (sub-licenses). Copyright conventions and national copyright laws may for compulsory provide licenses and statutory licenses in special cases.

Royalty will be paid to the author, etc. for each copy of a book sold, or for each public performance of a work.

Joint work and joint authorship

A joint work or work of joint authorship is generally understood as meaning a work created by two or more authors in direct collaboration or at least having regard to one anothers contributions, which may not be separated from each other and considered as independent creations. Examples of the most common types of joint works may be dramatico-musical compositions, musical works with lyrics, manuals written by several authors or computer programs created by a team. The authors of such a work are calledjoint authors or co-authors and their copyright in the whole unitary work in subject to special rules of copyright law. Joint works are not to be confused with either composite or collective works or collections.

According to most copyright laws, joint authors can authorize the use of the work only jointly and the terms of protection of rights to be measured from the death of the author are computed from the death of the last surviving author. The moral rights, in so far as granted by the applicable law, pertain to each of the joint authors individually and can also be exercised separately.

Infringement of copyright, piracy and remedies

Infringement of copyright characteristically consists of the unauthorized use itself (e.g. exhibition, reproduction, performance, broadcasting, other communication to the public of the work without permission; unauthorized distribution, exportation, importation of copies thereof; plagiarism; derivative use without the authors consent, etc.); in countries protecting moral rights, infringement of copyright may also consist of distortion of the work, omission of the mention of authorship, etc.

Piracy is the reproducing of published works or phonograms by any appropriate means for public distribution and also re-broadcasting anothers broadcast without proper authorization. Unlawful fixation of live performances is referred to in common parlance as bootlegging. Therefore pirated copyright goods includemean any goods which are copies made without the consent of the right holder or person duly authorized by the right holder in the country of production and which are made directly or indirectly from an article where the making of that copy would have constituted an infringement of a copyright or a related right under the law of the country of importation.

Legal proceedings can be instituted before a court or any competent authority for imposing sanctions on the infringement of copyright.There are both civil remedies and criminal remedies are available against infringement.Civil remedies compensate the owner of rights for economic injury suffered because of the infringement, usually in the form of monetary damages, and create an effective deterrent to further infringement, often in the form of a judicial order to destroy the infringing goods and the materials and implements which have been predominantly used for producing them; where there is a danger that infringing acts may be continued, the court may also issue injunctions against such acts, failure to comply with which would subject the infringer to payment of a fine.

Criminal sanctions are intended to punish those who willfully commit acts of piracy of copyright and related rights on a commercial scale, and, as in the case of civil remedies, to deter further infringement. The purpose of punishment is served by the imposition of substantial fines, and by sentences of imprisonment consistent with the level of penalties applied for crimes of corresponding seriousness, particularly in cases of repeat offenses. The purpose of deterrence is served by orders for the seizure, forfeiture and destruction of infringing goods, as well as the materials and implements the predominant use of which has been to commit the offense

Limitations on Rights

The first limitation to the rights is the exclusion of certain categories of works from copyright protection. In some countries works are excluded from protection if they are not fixed in tangible form; for example, a work of choreography would only be protected once the movements were written down in dance notation or recorded on videotape. In some countries, moreover, the texts of laws, court and administrative decisions are excluded from copyright protection.

1)Free uses, which are acts of exploitation of works that may be carried out without authorization and without an obligation to compensate the owner of rights for the use. Examples of free uses include: the making of quotations from a protected work, provided that the source of the quotation, including the name of the author, is mentioned and that the extent of the quotation is compatible with fair practice; use of works by way of illustration for teaching purposes; and use of works for the purpose of news reporting. In respect of the right of reproduction, the Berne Convention contains a general rule, rather than explicit detailed limitations.

Also numerous laws contain provisions allowing reproduction of a work exclusively for the personal, private and non-commercial use of individuals.

2)Non-voluntary licenses, under which the acts of exploitation may be carried out without authorization, butwith the obligation to compensate the owner of rights.

Non-voluntary licenses are usually created in circumstances where a new technology for the dissemination of works to the public had emerged, and where the national legislature feared that owners of rights would prevent the development of the new technology by refusing to authorize use of works.

To determine this, let’s first look at what the US Copyright Office says a copyright actually is: “Copyright is a form of protection grounded in the U.S. Constitution and granted by law for original works of authorship fixed in a tangible medium of expression. Copyright covers both published and unpublished works.” (retrieved November 26, 2006 from: http://www.copyright.gov/help/faq/faq-general.html#protect)

Now, there are two main types of copyrights: registered and non-registered. Let’s look at the differences between the two.

A non-registered copyright is automatically granted to the author or creator of any original work the instant that work is put in tangible form. In other words, as soon as you have created the work, in a tangible form (such as an article, novel, manuscript, picture, etc).If you created an original work, you automatically hold a copyright on the work.

In fact, the work doesn’t even have to be complete in order to be protected under a non-registered copyright. For example, if you are writing an article and you have five paragraphs written, but the article will be ten paragraphs long, as soon as you finish each word, each paragraph, that part of the article is protected already under a non-registered copyright. Same with a novel, manuscript, or other type of unfinished work. Photographs are copyrighted the minute the photo is snapped, and therefore on the film, and then any print or copy of it is also copyright protected under a non-registered copyright.

Now, ideas cannot be copyrighted, either registered or non-registered. For example, if you have a concept for a novel, the outline for the novel is not copyright protected. The idea for the plot or storyline is not copyrighted. For articles, the idea of an article topic cannot be copyrighted. For photography, the scene or the set up idea of how to take the photo, how to pose a subject, etc cannot be copyrighted. Only the work itself is able to have an automatic non-registered copyright protection.

So if a non-registered copyright is automatically granted to any tangible work created like this, why bother with registering a copyright?

According to the US Copyright Office, “Registration is recommended for a number of reasons. Many choose to register their works because they wish to have the facts of their copyright on the public record and have a certificate of registration. Registered works may be eligible for statutory damages and attorney’s fees in successful litigation. Finally, if registration occurs within 5 years of publication, it is considered prima facie evidence in a court of law.” (Retrieved November 26, 2006 from: http://www.copyright.gov/help/faq/faq-general.html#protect)

So essentially, registering a copyright with the US Copyright Office provides a public record of the actual work, making it known to the public that you created it. Additionally, copyright registration allows you to seek statutory damages in court should someone steal your work and claim it as their own. It should be understand that actual damages can be award with or without copyright registration, but registration is required for statutory damages. Copyright registration also protects against importation internationally of copyrighted works.

Copyright registration current costs about $45 for everything except periodicals and serials. This is a one time fee that secures a copyright registration on the work submitted, exactly as it is submitted.

Only you can decide if registering a copyright is worth the expense and time to do so. Personally, I don’t register a copyright on any of my articles, but I do on all of my books and manuscripts. For poetry, I typically compile my poetry into a volume of sorts, and register the copyright for the entire volume, which does indeed protect my poetry from being stolen and used without permission, but doesn’t individually copyright each poem.

Be careful of agencies like this one: http://www.gocopyright.com/ that offer to register your copyright for you. Technically, these sites are not scam sites, in that they actually do provide a service, but they charge you a fee to do something that you can very easily do yourself. To register a copyright, you simply need to fill out the form and return it with your $45 fee. There is no need to pay anyone else additional fees to do this for you.

The choice to register the copyright or not is up to you. If you plan to send your work to a large group of people, such as via the internet, to agents or publishers, or posting excerpts online for others to review or read, you might want to consider securing a copyright registration prior to doing so. Most agents and publishers are reputable, if you do your homework, and you don’t really need to register your work for copyright protection before sending to them. In fact, should your manuscript be picked up for publishing, chances are the publisher will foot the bill for the copyright registration as part of the publishing process. It’s definitely worth asking when a publishing contract offer is made whether it will include registration or not.

In the end, it’s really all a matter of what you intend to do with the work you have created and how much exposure you believe that work will gain. Copyrighting articles for internet use is probably not cost effective, and the standard automatic non-registered copyright should be enough. Of course, the converse side of this is that you also have a larger burden of proof if someone steals your works in order to prove you were the original author if you do not register a copyright on your articles. For larger or longer works that may receive more exposure or will be found in print, registering copyright protection makes perfect sense.

Keep in mind that you should if you are a writer read the terms and conditions of blog sites you may post at carefully. Several blog sites have you waiving your copyright and assigning it to the blog site as soon as you have posted the item. Sites that do this, please be careful not to post any poetry, articles, or other things you may be using elsewhere, because you may actually find you don’t have the legal right to do that if the item is also posted on a blog post of a site that asks you to assign copyright to the site. Be very careful with your copyrights of your tangible writings, because it is very easy to discover you have inadvertently assigned your copyright to someone else, making it impossible for you to use that piece elsewhere.

One last word about copyright protection if you use a pen name, or a pseudonym, you need to know that the use of this fictitious name does actually affect your copyright. When you register your copyright with the US Copyright Office, you have two choices if you have used a pen name to write the works.

1) You can register the copyright under your real name. The example the US Copyright Office gives is: example: “Judith Barton whose pseudonym is Madeline Elster”
Doing this will reveal your real identity should anyone search through the copyright records.

2) You can register the copyright under your pen name, as though it were your real name. This is used by people who don’t want the real identity revealed in the records of the copyright office.

According to the US Copyright Office, using a penname changes the copyright term as follows: “If the author is not identified in the records of the Copyright Office, the term of copyright is 95 years from publication of the work, or 120 years from its creation, whichever term expires first. If the author’s identity is later revealed in the records of the Copyright Office, the copyright term then becomes the author’s life plus 70 years.”

It is rare for most smaller articles or web content to have to fight a copyright infringement in court. Most of the time, the person who plagiarized or stole the work knows it is stolen and will usually remove the references to your work or the stolen work from publication immediately when they are caught and asked to do so. Most copyright infringement cases involve longer works, screenplays, or novels where someone has received considerable monetary payments from the work, and someone else is claiming the work was not theirs to begin with.

Copyright infringement does happen. Some courts have upheld verdicts based on the creation date of the document on the computer, but that’s no guarantee. Truth is, the best you can do when your copyright has been infringed upon is simply ask the person who stole the works to stop using it. If it’s posted online, and they do not comply, find out who hosts their site and ask the host to remove under the US Copyright Law. Most of the time, this is enough for smaller works posted on the internet.

As for the poor man’s copyrightit’s a common belief that you can create a poor man’s copyright’ by sealing and mailing your hard copy of your writing to yourself. Some judges may accept this as proof of date of creation and some may not, but the point here is, it still doesn’t allow you to seek certain statutory damages in court if the copyright is not registered and is instead a poor man’s copyright.

Your best bet is to determine how profitable you expect the tangible item you created to be in the future. Some authors actually compile all of their articles into one document and will register the document at the end of each year. Again, this provides no registration of the articles individually, but it does secure you as the original author of the work. This is especially important in the internet age when a lot things are copied and pasted on the internet. However, copyright registering everything you write at $45.00 per registration is probably not feasible for article and web writers.

Michelle L. Devon is a freelance writer and editor, providing services through her company, Accentuate Services, where we help you ACCENTUATE your writing. For more information, hints and tips for writers, links to paying writer’s jobs, or for a free quote for services, please visit her company’s website at

Often while driving around the city or on your way to work, you might have spotted advertisements, promotions and flyers about water damage franchises and mold removal franchises. You might even have seen these franchises established downtown or somewhere around the city. It is advisable to keep a flyer from any water damage franchise or mold removal franchise with you just in case you or someone you know might require their services at some point.

The purpose of establishing these franchises is that the company can make sure of its availability everywhere. For example, if you are a Los Angeles based water damage and mold removal establishment, you would have a water damage franchise and mold removal franchise established and working in Beverly Hills to represent your company and to expand the business.

Whenever you see tell-tale signs of some water damage around the house it is advisable that you immediately give a call to a water damage franchise. The experts working with these franchises would arrive at your home and take a look at the area of trouble. Since they are professionals and trained in dealing with such problems, these workers would spot the cause of the problem, such as a leakage in the plumbing, a burst pipe or seepage into the floor, walls etc and would let you know of your options to fix it. If the problem is a small one it can be easily solved by the workers at the water damage franchise for example repairing the pipes etc. But if the problem has escalated you would need to get some professional work done by these experts who would brief you as to what is needed. Often when the problem shoots up an entire change of plumbing or replacing of the damaged area is required which is hard work requiring patience, skill and expertise. You can always rely on a re liable water damage franchise to provide you with the skill and expertise to solve your problem.

Because of the damage due to water as well as due to other reasons, mold growth is usually observed in the damaged area. Mold is not only repulsive to look at but also causes a lot of damage to your property and health. Mold has been known to cause many health problems like asthma, irritations to the respiratory tract and other breathing problems which can be dangerous to the well-being of your family. It also causes extensive damage to property by rotting and weakening the structure. Mold removal should be taken very seriously and as soon as you see mold growth you should call a mold removal franchise. Often water damage and mold removal franchises provide with both services.

Vishal has been providing his SEO-Services for about 4 years now. Also he’s written a lot about it and also on many different topics, for writing is his passion. You can see Water Damage Franchise for more articles on the relevant topic or you can visit the website where this topic is being blogged about Mold Removal Franchise

Many people want to start their own business, so carpet cleaning business is an excellent business it does not require huge money and past experience. Regardless of location there is always demand of professional carpet cleaners. In present situation starting a carpet cleaning business is very simple with the help of carpet cleaning franchise.

These franchises provide some machinery and equipment for franchise owners. These franchises provide training to develop people according to carpet cleaning business. In beginning you can do everything by yourself and the only thing you have to be bothered is getting a good place to start your business and best marketing strategy to gain profit. Many busy people need to clean our carpet once in every six months. Make a list of regular client it will provide a regular money for your business. If franchise owners have a right marketing strategy it would be very profitable for your business. In recent survey it is found that average carpet cleaning technician take $40 per hours for cleaning so this the business which provide you large return with small investment. Carpet cleaning businesses have some qualities like easy to start, downturn proof, always in demand, chances of repeat customers.

This time is technology time and every one using Internet so most of the people looking for service on Internet advertise your carpet cleaning business over the Internet it completes half of your work. Many franchises fail due to lack of online marketing. This strategy best work in foreign countries because there people take cleaning and other type of service through net. Hiring new staff is easy than designing logo and purchasing equipment for your business this is one more advantage of taking franchise.
If you want to success in your business than you have to be in top position in Google searching for that particular service in your area so that when people searching as for example carpet c leaning in Manchester than your website will be on top and in this field you always set up Good marketing strategy and customer satisfaction for your clients.

One thing that many small business owners, especially new ones, don’t quite grasp is why they should take a small business franchise opportunity. The primary reason that franchises exist is that many small business owners don’t want the trouble of managing all the details of their business operations.

For many, the world of budgets and promotions is like visiting an alien planet, and all too often, they don’t know how to adjust to this new environment. This is especially true in Internet business, where many entrepreneurs jump in without training. Joining a franchise can lift this burden.

Franchising Into an Online Entrepreneurial Turnkey System

The greatest benefit to joining a franchise is that they provide an online entrepreneurial turnkey system. There’s a great deal of freedom in choosing which direction you want your business to go and doing so without the trouble of worrying over building websites, promoting them, managing finances and all the boring stuff. You simply choose what you’re going to do, and you do it.

Turnkey solutions provide such things as website templates, automatic mailers, promotional strategieseverything you need to keep from reinventing the wheel or using outdated tools and techniques. Many novice business people have wasted countless hours simply trying to find what works. These problems are immediately solved by having experienced professionals provide you with the right tools and services.

You Can Find an Affordable Capital Investment Strategy

Besides handling advertising, you may be offered assistance in finding an affordable capital investment strategy. You’re going to have to pay for something in order to sell it and make money from it, and you don’t want to do this by trial and error. Market research and investing doesn’t have to be rocket science to you. In fact, you don’t have to think about it at all.

Wouldn’t it be nice to be handed a list of things from which you can reasonably expect to make the most money with minimal upfront cost? You CAN get this kind of opportunity by joining a franchise that will help you at every step along the way. You don’t have to even join a multi level marketing company for this kind of support.

Your Personal Achievement–Internet Solutions Enable It

Without a doubt, a lot of business is done on the Internet, and succeeding on your own would be quite a personal achievement. Internet solutions such as online turnkey franchises can improve your chances of making it happen. Long gone are the days where “Mom and Pop” could simply open a website and turn into overnight millionaires. As in the world of storefronts, the Internet has gotten extremely competitive.

Still, the Internet is the optimal venue for the beginning entrepreneur. You don’t have to go to business school to make it in Cyberspace. However, there are still a lot of aspects of Internet business that you will need to learn or pay someone else to manage for you.

That’s where online turnkey franchises come in. They can take care of all the complicated, technical and time consuming work that goes into running an Internet business and the cost to you will be minimal. If you still want to enjoy time with your family while making your fortune in the Internet world, a turnkey solution is precisely what you need to make your dreams come true.

Franchises: Levels of Opportunity
Franchising offers franchisees a level of opportunity which is not possible in regular businesses. A start-up venture with an established brand, as well as with the support of seasoned professionals, is a tremendous advantage to a business person. Yet many do not realize that varied levels of opportunity are available within franchising. Franchisors can offer the standard franchise but there are also additional options for franchisees.
Types of Franchises
A mini-model – suitable for those with less capital
An in advance option allowing franchises to take on additional units based on future performance of the first location
A large territory option allowing an entrepreneur to become an area developer
A master licensing option in which an entire country or State is your playing field
Ideally, franchisees should enter at the most suitable level for their skills. Most franchisors will enjoy a challenge but nobody thrives in a business if they feel overwhelmed by the commitment. When you are exploring and comparing different franchises, understanding yourself is an invaluable asset.

Remember that a franchise is a long term commitment maybe five or ten years. Although in regards to franchises, commitment can be a relative term. Within the contractual commitment, the standard franchise is five years with the possibility of renewal for every 5 years subsequent to that period. The opportunities for renewal can extend up to a maximum of 15 to 30 years (and possibly ongoing) depending on the particular franchise.
Everyone does not have a clear understanding of franchise licenses. Many individuals are under the impression that franchises extend for an exact 15 or 25 years. Some people believe that franchises do not have an expiry date. The first franchise systems in North America did not have an expiry date. As franchisors leaned more about the industry, they realized that having no expiry date was not favorable to franchising.
The lifetime licenses ran into problems in two specific areas locations and losses. When locations began to show signs of age, franchisees lost interest and became complacent about their business. Since a neglected franchise can weaken the entire franchising system, the failing business becomes an impediment to future sales on the customer and franchisee side.
In addition, older contracts neglected to enforce rules and regulations about modernization. New locations did not open and the brand could not experience consistent growth. The whole system was affected in a negative manner. The lifetime licenses resulted in inadequate regional representation and often in failed franchises. Todays licenses include guidelines which encourage the franchisee to stay current in the modern marketplace.
If current franchisees let their business run down or do not market it in a proper manner, they need not expect a renewal following the five-year period. Modern renewable-on-conditions contracts help protect the investment of the franchisor and the franchisee. These contracts help maintain and increase the value of locations and ensure the health of the franchise. Since franchises are an extremely synergistic setup, the guidelines set up a winning scenario for the entire franchising system. Offering distinct levels of business opportunities, modern franchising is a flourishing industry.

Franchise business opportunities our unessential peace to the American fabric. Traditionally first-time business owners or first-time entrepreneurs get drawn to franchises because they bring a proven system in place and they usually already have the business plan and marketing plan done for them. It’s probably a safe bet to say that the typical franchise owner is someone who may not necessarily have the experience nor the expertise to start a business from scratch and to keep it out of the 95% failure rate.

Franchise business opportunities provide a lot of value to the economy and in this article I’m going to break down and give you five tips in finding the right franchise for you and family.

1. The industry – What you are really looking for in a franchise business opportunity it is a business in an industry of growth. That means it can’t be a industry that is mature or stagnant… It must have competition and it must have innovation. While doing your due diligence, look at the number of franchises that have recently opened and look at the number of franchises that have recently closed. These numbers should give you a good insight as to if everyone is jumping on board or if the rats are jumping off the ship.
2. Leadership – You might be wondering why the leadership of the franchise business opportunity is being talked about, but it’s been my experience that the leadership of the company can ultimately decide the success or failure of the business. If the leadership is more concerned about fattening their own wallets, run and run fast like your hair is on fire. Most franchises will have good leadership but it’s still very wise to find out everything you can about the entire leadership of the franchise.

3. Total cost to entry – The typical franchise business opportunity today will cost you roughly $250,000 and that doesn’t even include the real estate you’re going to need. On top of that, you usually have to have a high net worth, a good credit history and the down payment needed for the franchise must come from your liquid assets. For some entrepreneurs, this can be a little steep. Recently home-based or online franchise business opportunities have become quite popular as they usually don’t cost quite as much as traditional franchises.

4. Territory restrictions – What most new franchise owners don’t know is that you can negotiate your territory restriction with the franchise Corporation. It is wise to seek expert counsel and negotiate for everything that you can, especially the size of your territory. If the territory are looking at is not to your liking, negotiate for the lowest amount of time possible with that territory in your contract. On the flip side, if your territory is to your liking, negotiate for as long as possible with your contract.

5. Royalty fees – The typical royalty payments today range from 2% to 10% of gross sales, not net revenues. Once again, if you can negotiate your royalty fees, then that would be great. If you can’t, conduct eve n further due diligence to make sure that your business can survive on $.90 on the dollar. This means that your profits must be calculated into this as well. Some franchises, like car wash franchises, have minimum royalty payments due no matter what happens with the business. Make sure you account for natural disasters, weather, etc.

Often business owners are anxious of expanding their business as they feel that breach up franchisees is for sure an intricate process. They are in most cases of the estimation that they lack resources to enlarge their business additional and therefore are not keen to amend and expand the scope of their business. If you are such a businessman who is intense to expand but lacks the assurance to do so then wait for a while. We have information that will lend a hand you to develop your business. Read on as we contribute several secrets with you

If you need a Miami Florida franchise business consultant, look no further than Franchise Assets. We have business franchises for sale and offer many computer technology franchise opportunities for small and large medium of business starters.

Your objective as a WSI franchisee is easy, simple and effective. Using WSIs proven and patent pending Business Systems, your task is to consult and evaluate the needs of small and medium sized companies within your community by providing them with unbeaten Internet Solutions that will help them cut their costs and boost profitability. As a WSI franchisee owner, you will be able to provide your clients cutting edge technology at affordable prices while creating for yourself an ongoing stream of reoccurring revenue from your customers.

Our franchisees (Internet Consultants) are available to both men and women who consist of all ages and backgrounds. No preceding technical experience is required to succeed in this role. WSI offers the most complete and comprehensive Training & Certification programs coupled with an on-going Support Program, isnt it great? Your clients Internet Solution are independently built at any of WSIs Global Production Centers – tactically located in low cost, high-tech regions – delivering to your client a results oriented, technologically advanced Internet Solution at an economical and efficient cost.

Franchise Assets Offer many computer technology franchise opportunities and franchises business for sale Atlanta Georgia franchise consultant, Miami Florida franchise consultant.

If you need a San Francisco California franchise consultant, look no further than Franchise Assets. We have business franchises for sale and offer many computer technology related and many other franchise opportunities with both small and large business package.

What’s the difference between franchising vs. licensing a business? The starting point in the franchising vs. licensing a business analysis is to consider the legal aspects, then the business aspects. In considering the legal aspects, begin with the following premise that applies to both options. If you put someone into business (or allow them to use your business name/mark) this transaction will normally be a regulated activity, subject to substantial penalties for noncompliance.

This guiding legal principle, coupled with the business aspects of selling a franchise vs. a license (discussed below) will answer most franchise vs. license questions. Advice from a competent franchise attorney is indispensable.

BACKGROUND OF FRANCHISE & BUSINESS OPPORTUNITY LAWS
Why does regulation exist? The government, due to documented past abuses where tens of thousands of individuals lost all of their net worth by investing in nonexistent or worthl ess business endeavors, has devised two principal consumer protection mechanisms:

(1) franchise disclosure-registration laws; and
(2) business opportunity laws.

The thrust of these laws is to require sellers to give potential buyers enough pre-sale information so informed investment decisions can be made before money changes hands, long-term contracts are signed and sizeable financial commitments are undertaken. Under federal regulations, a Franchise Disclosure Document (FDD) covering twenty-three individual chapters and a hundred or more pages in length must be prepared and given to every potential buyer at least 14 calendar days before any contract is signed or money paid.

It doesn’t matter what terms are used by the parties in contracts or other documents to describe their relationship. For example, the contract may call the relationship a license, a distributorship, a joint venture, independent contractors, etc., or the parties may form a limi ted partnership or a corporation. This is entirely irrelevant in the eyes of governmental regulators, in particular the Enforcement Division of the Federal Trade Commission (FTC). Their focus is not on semantics, but on whether a small number of defining elements are present or not. Today the industry is subject to a complex web of regulations that differ from the Federal level to the state level and differ widely from state to state.

Firms or individuals that say calling it a “license” dispenses with legal regulations are delusional and wrong for at least three reasons:

(1) Common Sense – if it was really that easy, everyone would would be doing it that way. The 3,000-plus companies that are franchising are not stupid. Many of them can afford the best legal talent available. It’s not a coincidence they’re all franchising and not licensing;

(2) Even if the relationship is not regulated under franchise law, business oppor tunity laws (discussed below) will apply, and complying with these will be a lot more expensive than going the franchise route; and

(3) Any analysis must include federal as well as applicable state laws.

This all reminds me of some financial planners who still advise clients filing U.S. income tax returns is not required under their interpretation of the U.S. Constitution. It just doesnt work that way. Actually it only works until the IRS catches up. The “licensing avoids franchise regulation” spin (which, not surprisingly, is not accepted in the legal community) also only works until the company gets caught. The logic (not) goes something like this: licensing arises under contract law, not franchise law and therefore franchise law doesn’t apply. Sound’s just like the “you don’t have to file a tax return because tax laws don’t apply” argument.

Here’s a real life example. A “licensing attorney” prepared a dealer license agreement and igno red the FTC Franchise Rule disclosure requirements. The dealers became disgruntled and hired a litigation attorney who sued the company, not surprisingly, for selling illegal, disguised franchises. It cost the company $750,000 to go to trial in federal court to answer the question “Is this contract a franchise?” It’s always a very expensive question to answer. Trying an end run around the franchise disclosure laws by calling it a “license” may be a cheaper way to go initially. But it’s not a question of if you will be caught, the only question is when. Be prepared to spend mind-boggling amounts down the road when the disguised franchise is challenged for what it really is.

In a 2008 case, Otto Dental Supply, Inc. v. Kerr Corp., 2008 WL 410630 (E.D. Ark. 2/13/08) another disguised franchise vs. a license was at issue. The licensor claimed it sold just a license, not a franchise and the franchise laws didn’t apply. It made a motion for summary judgment to have the case thrown out of court. The federal Eastern District Court ruled against the licensor and ordered the case onward. It said whether or not the license was really a franchise was up to a jury to decide. Juries apply common sense to the simple defining elements of a franchise. They are not swayed by semantic arguments like “licensing arises under contract law, not franchise law and therefore franchise law doesn’t apply.” Another expensive franchise vs. license learning lesson.

This is not to say licensing a business isn’t a viable option in foreign (out of U.S.) transactions where U.S. laws don’t apply – but these are a very small minority. Most transactions and contracts cover U.S. activities and residents, so the franchise vs. license question is an easy one to answer. Even inside the U.S. there are some cases where calling the relationship a “license” makes sense. Years ago, a company selling education franchises to university profession als called their contract a license. To comply with applicable laws, a full franchise disclosure document was prepared and registered. For strictly marketing reasons, the “franchise agreement” was called a license agreement within the franchise disclosure document.

The list of required defining elements is quite short, and although certain franchise exemptions and exclusions are available, the franchise statutory framework was designed to pigeonhole these relationships into either a franchise or business opportunity box. Normal license agreements contain certain “control” provisions (right to audit, require reports, mandate suppliers, etc.) and the presence of ANY control or assistance provision (operations manual, training, site or other assistance) is enough to satisfy these elements of the Rule. In fact, the title of the FTC Rule says it all: “Disclosure Requirements & Prohibitions Concerning Franchising and Business Opportunity Ventures.” So, the focus must be on which box is better to use, not on how to avoid using either box.

THE FRANCHISE BOX – REGULATION BY THE FEDS
Let’s consider the franchise box. Under FTC regulations that became effective in 1979 a thick document (now called a Franchise Disclosure Document) must be prepared and given to prospective buyers for a minimum of 14 calendar days before any money is paid or contracts are signed. This document now contains 23 items or chapters of information, as well as current financial statements and a copy of the actual contracts used.

As mentioned, this document is designed to give prospective buyers enough pre-sale information about the company, its financial condition, the proposed contract, investment requirements, trademark rights, exclusive territories, etc.,so informed decisions can be made before long-term contracts are signed. For companies that attempt to disregard federal law, the FTC Act authorizes the Commission to recover civil penalties of up to $10,000 for each violation of its Rule, plus injunctive relief, consumer redress (obtaining complete refunds, canceling contracts), etc. Because each sale can involve multiple violations of various regulatory provisions, these fines can be substantia l and far outweigh the cost of doing it right the first time.

Selling a disguised franchise (an illegal franchise) as a “license” can be the most expensive mistake a company ever makes. One need only consult the franchise registration filings of various states to see the significant number of companies that fall into this trap. They started out selling “licenses,” operating under misguided advice, in a vain attempt to save money. Then, they either get sued for selling an unregistered or illegal franchise. Or they finally get competent legal advice that what they’ve really sold are disguised franchises, even though they were called a “license.” The governmental agencies require them to offer full rescission rights (cancel the license, refund all money that’s changed hands) to all persons they’ve sold “licenses” to. Defenses like “we didn’t sell a franchise, we only sold a license” or “it’s a license and a license arises under contract law, not franchise law” just don’t work and never have. In the end, they pay a lot more to have it done the way it should have from the very beginning. And for those disguised franchise owners who usually exercise their “let’s get out of this license contract” rights given to them by the regulatory agencies, the sellers end up putting them into the business for free plus having to refund all the money they paid. Not a pretty picture.

STATE REGULATION OF FRANCHISING
Because regulation of franchising is at the federal and state level, the effect of state regulation must also be considered. The FTC Rule sets minimum standards and applies in all states, unless a particular state sets higher standards, and then that state’s law applies. In 1971, eight years before the FTC Rule went into effect, the State of California was the first to enact a franchise disclosure-registration law where a franchise registration process is required before franchises can be offered (i.e. advertised) or sold. The California Franchise Investment Law was in response to a wave of consumer franchise complaints. Other states soon followed Californias lead, leading to a situation where franchise companies had to follow different rules in each franchise registration state.

To alleviate these difficulties and achieve a uniform format, a group of Securities Commissioners from various states adopted a Uniform Franchise Regulation, effective in 1977, known as the Uniform Franchise Offering Circular (UFOC) format. All states requiring franchise registration followed the UFOC format, a thick document also containing 23 chapters of information. None of these states accepted what was then known as the FTC’s Basic Disclosure Document. To ease the obvious predicament created by UFOC vs. FTC format, the FTC allowed companies to use the UFOC format as an alternate to its Basic Disclosure Document. In 2007, the FTC adopted its own version of the UFOC format, known as the Franchise Disc losure Document or FDD. The FDD format is the required format in all states beginning July 1, 2008.

FRANCHISE BOX SUMMARY
Bottom line on the franchise box: By preparing a single franchise disclosure document (at a cost of about $30,000), a company satisfies the federal requirement and is positioned to offer and sell franchises throughout the United States. Although certain state-specific information and disclosures may be required in the minority of states having a franchise registration-review process, this can normally be accomplished in a couple of extra hours per state.

THE BUSINESS OPPORTUNITY BOX
Now, let’s consider the business opportunity box. At the state level, there are approximately 24 states that regulate and register business opportunities. Unlike the franchise box, there is no such thing as a uniform business opportunity disclosure format. Business opportunity rules and registration requirements dif fer in each business opportunity state. Many of these states also have a “cooling off” period, usually a couple days after the sale where buyers can change their mind for any reason and receive a full refund.

For a company that’s going the business opportunity route two different documents may need to be prepared and provided: the FTC’s Basic Disclosure Document (if the business opportunity fits the FTCs definition of a business opportunity) and a state’s more abbreviated business opportunity disclosure document. Also, different timelines may need to be observed: the FTC’s 14 calendar days before, and a business opportunity state’s cooling off period after.

Bottom line on the business opportunity box – if you’re an attorney with a business opportunity or “licensing” client, get ready for hundreds of billable hours, you’ve just landed a big one. But, if you’re the business paying the legal bills, it’s going to be a lot less money to go the franchise route. Prepa re a single, Franchise Disclosure Document, register in a state or two as expansion efforts begin, and you’re essentially done.

There are also other factors to consider in the franchise vs. business opportunity analysis, including liability issues (definitely a greater risk in the franchise arena) but these are beyond the scope of this article, which is not intended to offer legal advice. Companies should consult with competent, informed legal counsel about the specifics of their particular situation before making any decision.

THE BUSINESS ASPECTS OF FRANCHISING VS. LICENSING A BUSINESS
The business aspects of the franchise vs. license and business opportunity options are relatively straightforward. It all boils down to image from a marketing standpoint. From a credibility standpoint, does your company want to stand toe to toe with the likes of McDonalds, Radio Shack, H & R Block and other franchised household names? These are the m ental images formed in the mind when an average consumer hears the word franchise, along with familiar, highly advertised slogans like “being in business for yourself, but not by yourself,” “complete training,” “support where and when you need it,” etc.

This, coupled with the complete package of training, start up and ongoing support services offered by franchise companies, makes a franchise a more attractive commodity in the eyes of the prospective buyer and an easier sale. The same applies to firms that first sold “licenses” then switched to selling “franchises.” These companies report they attracted considerable interest and far more inquiries when offering “franchises” compared to when they offered “licenses.” So, even from a business standpoint, the franchising vs. licensing a business question is easy to answer. In addition, and as discussed above, a “license” is almost always a franchise in disguise, a ticking bomb creating sig nificant legal issues if the FTC Rule (and corresponding state franchise registration laws) are not followed.

THE BUSINESS ASPECTS OF FRANCHISING VS. BUSINESS OPPORTUNITIES
Business opportunity ventures, when compared to franchises, suffer from definite image problems that translate into difficult marketing issues. If you ever need proof of this, just attend any business opportunity show or expo. You’ll see a host of fly-by-night opportunities such as worm breeding in backyards, exotic plants raised in glass bowls, condom vending machines (not a bad idea these days) and the like all promoted by fast-talking, high pressure salespersons. Does your company really want to be associated with these companies and the reputation they project? Poor image, coupled with the fact that business opportunity ventures typically provide little training and no ongoing support, make them a much more difficult sale to prospective buyers. In a business opportunity, the buyer is just thrown a ball, and it’s entirely up to them how to run with it.

CONCLUDING REMARKS
From both a legal and business perspective, the franchise vs. license choice is an easy one to make. Doing it right the first time will save money and significant legal headaches down the road. The individuals prevalent on the internet who claim (via very unprofessional-looking websites) that merely calling the relationship a “license,” are only selling a future lawsuit. They are not looking through the lens of an expert with almost three decades of experience who has seen first-hand the havoc these “disguised” franchises cause. Instead, they are attempting to make easy money – at your expense. From the most basic, common sense perspective, if it looks like a Duck, talks like a Duck and walks like a Duck – . . . it’s a Duck.

1990-2009, Kevin B. Murphy, B.S., M.B.A., J.D. – all rights reserved.

For the last twenty-eight years, as a franchise attorney, author, instructor and recognized franchise expert, I’ve helped firms enter and prosper in the franchise industry each hoping to become the next “McDonalds” of their respective industries. Along the way, I’ve met and worked with an interesting group of entrepreneurial founders. From apparel to water treatment, the franchised concepts were also incredibly diverse. Some of them interested me to the point where I considered buying a franchise myself. In two or three cases, talks were initiated to discuss the possibility, but never moved forward. I just couldn’t find the precise set of criteria to satisfy my exacting requirements. After all, I had advised hundreds of prospective franchise buyers, and developed sophisticated radar for detecting the good, the bad and the ugly in franchise investments.

In May of 2002, my life changed dramatically as I took the plunge and became a first-time franchise owner. I’d just completed a franchise development project for a San Francisco Peninsula company poised to enter franchising. They operated a very successful home improvement business that specialized in a unique niche. Targeting homes constructed in the 1960′s to the 1980′s having old, flat, ugly interior doors, this company replaced all interior doors in a home with new, freshly-painted raised panel designer doors, locksets and hinges. Their advertising mantra was “Replacing America’s 1.16 Billion Interior Doors.”

After interviewing a couple interested franchise candidates who didn’t sign up, the company became concerned about selling its first franchise. Selling the first one is usually the most challenging task facing any new franchise company. There are no other franchise owners a prospective buyer can talk to about financial performance, training, ongoing support and other franchise relationship issues. Because of this void, selling the first one is difficult. After I was repeatedly asked when they could expect to sell their first franchise, my hand finally jumped up and I volunteered for the assignment. My franchise agreement was signed May 22, 2002.

Let’s consider the major assumptions and factors I evaluated in making my buying a franchise investment decision, and see how things worked out.

INDUSTRY TREND
As stated in the previous franchise article, a major issue is finding a franchise in a cutting-edge industry that is doing well currently and is projected to do well in the future despite any economic slowdown. From my experience in evaluating hundreds of franchises, I observed the home-improvement industry was a stable segment. People are always looking for ways to improve the appearance and value of their homes.

Unlike other home improvement companies that concentrate on a single, high ticket improvement (a kitchen remodel, for example, that can cost $50,000 and more), for a couple thousand dollars ($2,000 to $5,000), a homeowner can give every room in their entire home a major face lift by replacing their old, flat doors with new raised panel, designer doors. In the aftermath of the 9-11 attacks, and the country’s high security anxiety, I felt more people than ever would be nesting at home. A home typically represents the most valuable asset in a family’s portfolio. If the homeowner can be educated and motivated to improve the appearance and value of this asset, by making a reasonable investment, sales are easy.

Major home improvement chains, like Home Depot, realized this and were aggressively promoting interior door replacement. However, they were not organized to meet the needs of the target market in a cost-effective manner. The franchise company had discovered and perfected the “do-it-right” approach for this market, and actually welcomed competitive bids from the Home Depot and other large home improvement chains. In my estimation, all of this bode well for home improvements in general, and this franchise company in particular.

TOTAL INITIAL FRANCHISE INVESTMENT
The franchise company estimated initial franchise investment between $127,00 and $180,000 in its Franchise Offering Circular. Turned out, I came in below the low end of the range. Including the $20,000 in franchise fees and the $78,000 I used against a home equity line of credit, our total investment was just under $100,000. Incredibly, this was enough to get the business operational AND reach the critical break-even point where cash flow paid all the bills. As discussed in the other franchise article, reaching the break-even point in many businesses can take a year, two years or more.

Getting operational happened fairly quickly. From the time I signed the franchise agreement at the end of May, 2002, secured the real estate in mid-July, 2002, completed improvements then training in August, 2002, and began operations like a rocket in the first week of September, 2002, about four months elapsed. We hit the break-even point in mid-October, 2002, just six weeks after operations started, and began to accumulate an ever-increasing balance in the business savings account.

When I sold the franchise in September of 2003, our interior door replacement business was rocking and rolling. Residential home owners negotiated for position on our six to eight week waiting list to get their old, ugly, flat interior doors replaced with new raised-panel, designer interior doors and shinny lock sets. The new owner paid $236,000 for our franchise, and I received $235,000 after escrow fees. Subtracting our $100,000 investment left a tidy $135,000 profit. Not bad for operating the business exactly one year, and this didn’t include operating monthly income before the business was sold.

REAL BUSINESS
I operated a retail business with a storefront, as opposed to a “work out of your home” operation.

FRANCHISE MANAGEMENT EXPERTISE
The management team of the franchisor had no past achievement and experience in operating a franchise company. They had just started the franchise company and were learning on the fly. That was definitely a major risk. However, I’d given them detailed seminars on how to operate a franchise company and manage franchise relationships based on my twenty-plus years of franchise industry expertise, and had every reason to believe they’d follow my advice. And, because I was their very first franchise, I also believed they would do everything it took to make me a success. My goal was to develop the first franchise from scratch, build it up, then either develop other franchises for them, or sell out depending on what happened in the franchise relationship. I opted to sell out.

NORMAL WORKING HOURS AND DAYS; SUFFICIENT INCOME LEVEL – FRANCHISE PROFITS AND FRANCHISE PROFITABILITY
The nature of this business was a normal five-day, forty-hour workweek. Our business hours were 9A to 5P, Monday through Friday initially. After talking with the owner of the second franchise in early 2003, I discovered and copied his idea of a forty-hour work week spread over four, instead of five days.

Although this meant our employees needed to work four ten-hour days, they were very receptive to the idea. By starting on Monday and getting all door orders for the week installed by Thursday, everyone had a three day weekend every week, not just on an occasional holiday. Of course, I didn’t have to work ten hours a day. I arrived by 10 a.m. and usually finished by 4 p.m. – Monday through Thursday. Supervising four employees, working 24 hours a week and having 3-day weekends off every week try finding that in another franchise!

What about the financial picture? Let’s take June of 2003, the tenth month of operations when I started interviewing a number of interested buyers. Sales were $47,000 less expenses of $35,500, left an income that month of $11,500. Of course other months varied, and the business was still in the start-up development stage operating with only a single crew of four employees – but you get the idea. Using the results for June and multiplying by twelve for an annual result, I’d entered financial performance territory only enjoyed by a select group in the entire franchise industry.

MINIMUM NUMBER OF EMPLOYEES
Remember my key question here: can you operate the business with six or fewer employees? When we started business operations in September, 2002, we had two employees. A month later, we added another. When the business sold a year later, our crew consisted of one part-time and three full-time employees.

LEASING AND LOCATION
Our interior door replacement business operated from a low rent commercial business zone, so high square foot rent and triple net leases were never a concern. The 7,200 square foot warehouse and retail showroom we settled on in San Carlos, CA, with rent starting at $0.65 per foot the first year, seemed almost too big (and expensive) initially. Cutting a rental check to the landlord for about $5,000 every month, by far the biggest initial operating expense, made my heart race while I thought “is this whole thing going to work and how long will it take to reach the break-even point?” But, as things turned out, our location was perfect, sales were never an issue, and we hit break-even just six weeks after operations started.

Due to the size of the facility and nature of the interior door replacement business, three crews were possible and bringing them online, one crew at a time, would double then ultimately triple sales. Also, because we were the first to enter the franchise system, we selected the very lucrative, exclusive territory that stretched from Palo Alto, CA all the way up to San Francisco, CA. Although we never expanded the business beyond a single crew, these “next steps” in the evolution of the business in such a prime territory were strong selling points. The new owner of our franchise ultimately took the next steps and with three crews enjoys weekly sales of $30K to $35K – which is over $1.5 million per year.

IMAGE AND LIFESTYLE
I didn’t need to flip burgers, scoop ice cream or clean restrooms. As a franchise co-owner, my principal job was creating and maintaining client relations. I placed ads designed by the franchise company, responded to customer phone calls, set up appointments, did estimates and sent out contracts. A lot of my working time was spent driving to customer’s homes, meeting with them over coffee, taking measurements of all their interior doors, going over the options and explaining our one week production cycle picking up their old doors on a Monday and installing the new doors by Thursday.

Back at the office, I’d enter the estimate information in our computer and generate a contract proposal. Then I’d email or fax the contract to the customer and wait for their deposit. About 70% of the proposals turned into jobs. Customers called back, gave me their credit card billing information, faxed in the signed contract and I scheduled their production week. By the time I sold the business in September of 2003, residential homeowners negotiated for position on our six to eight week waiting list to get their interior doors replaced.

I also ordered the new doors, lock sets, hinges, paint and accessories. Finally, I paid the bills. It was a very efficient business, great cash flow, no billing and no waiting for payment. As I look back, I saw some very nice homes and met some very interesting people. The pickup, production, painting and installation process was handled directly by our employees under the supervision of our contractor, so I wasn’t involved in this aspect although I did go out with our crew for about three months picking up and installing doors. That way, I understood the process firsthand, and this helped considerably in knowing how to bid jobs and cover contingencies in the contract.

TRUE FRANCHISE VALUE

I knew going in this franchise investment was not with an established blue chip’ franchise company. After all, I’d purchased their very first franchise, becoming the ground breakers, the pioneers willing to accept a much greater degree of risk than other franchise buyers. In return, I expected an adequate level of support from the franchise company. Virtually every new franchise company gives not only adequate, but extra support to its first franchise to compensate for that franchisee’s help in pioneering the new franchise system and the additional risk they’ve assumed. There’s also a self-interest in providing extra support the future growth of the franchise network hinges on the success of the first franchise.

The ultimate test of franchise value came in November of 2002. I was en-route, driving our box van, jamb-packed with doors, power tools, lock sets, hinges, etc., headed to our biggest installation job yet, with our contractor, Scotty, who supervised our team and was our franchisor-approved manager. Everyone else was back at the shop, frantically cutting, sanding and painting the rest of the 100-plus doors scheduled for other jobs that week.

Knowing we had taken on the busiest week of our fledgling business, contractor Scotty complained all week about his wages, saying he wasn’t being paid enough. I’d explained, numerous times, our cash flow wouldn’t support any pay increases at the moment, that he’d only been working for me a little over two months, and his pay was exactly what he requested when I hired him. Scotty wasn’t listening and his complaints continued during our drive along El Camino Real to the client’s house. We were stopped at a red light, waiting to make a turn when Scotty abruptly announced “I’m out of here, I quit.” Opening the passenger door, he jumped out, and walked quickly down the sidewalk of El Camino Real, leaving me stranded in a van that’s a bit larger than a UPS delivery truck. Scotty believed he was indispensable and his theatrics were nothing but a hardball, power play for money.

Looking back at all those freshly painted doors in the van, I knew there was no way one person could install them. I completed my turn, pulled over, and called our shop with my cell phone. Our main door cutter and best employee, Brian, confirmed what I already knew. He could leave and meet me for the install, but that would throw off our entire schedule for the week.

Then, I remembered something important. “That’s why I bought a franchise,” I thought to myself, “we’re in business for ourselves, but not by ourselves.” Surely the franchise company would know exactly what to do, and help us, their very first franchise, deal with a problem that could cripple or kill the new business. They were just a short twenty-minute drive away, had multiple crews, etc. I called the founder, Mr. Interior Door.

The first thing Mike said, after I’d related my predicament was: “Do you think Scott will start a competing business?” I assured him that wasn’t even remotely possible. Starting a door business usually cost upwards of $350,000, requires a sizeable warehouse-showroom, power tools, delivery van and other things. Scotty, besides his personal tools, had no assets. He’d even moved into our warehouse from day one so he didn’t have to pay rent and lived paycheck to paycheck.

I quickly redirected Mike to the purpose of my call and asked for his advice and H-E-L-P. Perhaps a couple of his door installers for the rest of the week, at my expense? Answer – no. What about one person for the rest of the day? Answer – no. What about one person for just a couple hours? Same answer – no. Incredibly, Mr. Interior Door said he couldn’t spare even a single person (including himself) for a couple hours to help us out.

So, no help – but what about advice? Mike’s only advice: call all our customers, including the one I was en-route to, tell them we couldn’t make it this week and re-schedule all jobs forward a week. Since we’d already booked other jobs over the next two weeks, this would have been a disaster, not only to our cash flow (payroll, rent and supplier bills were due that week) but also for our customers who’d already scheduled time off work to be at their homes on the scheduled dates.

That’s when I realized we were in business for ourselves . . . and by ourselves. After thinking things over in the silent van, I called the shop and told Brian to meet me at the customer’s home for the installation. I figured at least we’d collect $4,000 doing this job and just have to see about the rest of the week. By the time Brian and I finished, the day was over. We arrived back at the shop at 4 p.m. quitting time for our construction workers. Our door jobs for the next day were not even close to being finished. The crisis was finally upon us – should I follow Mike’s advice, call all our customers and try to reschedule for the following week?

I decided on a different approach. I held a little meeting, explained the situation, and asked our employees if they’d be willing to work overtime, so our new business wouldn’t go out of business. I also fully realized our employee’s concerns. They’d been working very hard that week to help us achieve our ambitious goal. Our team leader, Scotty, was history, and they all had families and responsibilities at home. Under normal circumstances I’d be up the proverbial creek without a paddle.

MANAGEMENT STYLE TO THE RESCUE
From the very beginning I treated our employees like members of a family. It was a very extended version of theory “Y” management style I’d studied in my graduate business classes. Everyday, I bought lunch for all employees and we ate together, discussing what was new in their lives as well as exchanging door stories. I also provided soft drinks, coffee and snacks throughout the day at the shop. On birthdays, I’d take the person out to a movie of their choice and dinner afterwards.

Luckily, I didn’t have that many employees, but every month saw an ever-increasing total for these benefits on our profit and loss statement. I questioned myself about it, thinking Mr. Interior Door only provided employee meals once every couple months for a special occasion. But I realized if some day I really needed them, they’ll be there for me.”

This management style kept the business in business and on track that November. All employees immediately agreed to work overtime. I ordered pizzas for everyone for dinner and they worked from 5 p.m. until 1 a.m. the next morning. This dedication repeated itself over the next two days, which is nothing short of incredible, given they all had to report back to work at 7 a.m. each morning. We completed all jobs scheduled for that week, collected our money and all customers were very satisfied. By the next week, the business was on track, humming along, and strengthened by overcoming the adversity.

SUMMARY
Looking back, I happened to be in the right place at the right time, and was willing to take a calculated risk. I didn’t rush in, took a lot of time evaluating many factors, and kept emotions out of the franchise investment decision – avoiding the three mistakes made by most franchise buyers.

It was definitely an effort getting the business established, finding the right location, the right workers, and navigating a new business on my own. But the challenges were a learning experience, and overcoming them was very rewarding. Although I’ve advised hundreds of individuals and firms about the in’s and out’s of franchising, the insights gained and lessons learned in operating my own franchise and interacting with the franchise company retooled my knowledge of franchise relationships.

2003-2008, Kevin B. Murphy, B.S., M.B.A., J.D. – all rights reserved

For more information, visit the Franchise Foundations website

Franchise Disclosure Documents (FDD) under the FTC’s new Franchise Rule continue to be a good concept in theory. Unfortunately, reality plays a more important role and reveals an entirely different picture.

Here are some of my observations, based on twenty-eight plus years of experience in the franchise industry as a franchise attorney, franchise expert and former franchise owner. During this time, I’ve drafted, reviewed and negotiated over 500 Franchise Disclosure Documents.

Franchise Disclosure Goals
Franchise Disclosure Documents or FDD (formerly known as Uniform Franchise Offering Circulars) are a document containing twenty-three chapters of information. These disclosures are intended to give prospective franchise buyers enough pre-sale information so an intelligent franchise investment decision can be made before long-term contracts are signed, money changes hands and sizeable financial commitments are made. In most cases, a franchise investment has long-term financial consequences. It means putting everything on the line – savings, retirement accounts, home equity, etc. With all this at stake, it’s easy to see why the disclosures in the FDD are so important.

Aura Of Credibility
Attached as exhibits to the FDD are the franchise company’s audited financial statements, franchise agreement, and a list of operating (and departed) franchise owners. If the company elects to make a franchise "Earnings Claim," that information will be set forth either in Item 19 or attached as another exhibit. The entire document is quite lengthy and can exceed several hundred pages. In certain states (known as franchise registration states like California, New York, Illinois, etc.) the FDD makes reference to being registered with the state. All these formalities creates an aura of credibility. Many franchise buyers assume a regulatory agency has reviewed and approved the franchise offering. Unscrupulous franchise companies engage in blatant misrepresentation, referring to their franchise registration with a state as that state’s "stamp of approval." Nothing could be further from the truth.

Franchise Registration Realities
First of all, registration of a company’s Franchise Disclosure Document only means they’ve paid a registration fee to a governmental agency and submitted their document. There are no standards a franchise company must meet before it can sell franchises, such as business experience, financial stability, operating a successful prototype for a certain period of time before franchising, etc.

Business Experience And Financial Stability?
You and I could have no experience in a business concept, and never operated a prototype. All we have is an idea to franchise, letting other people (franchise buyers) risk their savings, homes, etc. to see if our idea pans out in the marketplace. All we need to do to franchise is put together a Franchise Disclosure Document, and capitalize our new franchise corporation or LLC. Let’s say we don’t want to risk anything ourselves, so we decide to capitalize our new franchise corporation with only $1. After producing an audited financial statement (showing $1 cash and stock issued for $1), and including this financial in our Franchise Disclosure Document, we’d be able to sell franchises with impunity and collect our $50,000 franchise fee every time we sell a franchise.

Franchise Registration States
Of course, in the U.S. there are about 14 franchise registration states where we’d have to pay a registration fee and file the document with the appropriate state agency. But that’s just a rubber stamp and no registration state will refuse to register our franchise offering. Because we’re “thinly capitalized” these states may require an escrow condition where we don’t receive the franchise fee until the franchisee opens for business. Or these registration states may just say we can’t accept payment of the franchise fee until the franchisee opens, and require a simple amendment to our franchise agreement to reflect this condition. That’s the trend here in California and the bottom line is we’d get “registered.”

Even franchise examiners (who are usually attorneys) in registration states issue registration renewal orders to franchise companies who have been operating a couple years and whose audited financial statements say (in an brief footnote): "Since its inception, the franchise company has incurred a net loss of $X million. These and other factors indicate substantial doubt the Company will be able to continue as a going concern." Translation: the auditors are saying the company’s ready to go broke. Result: Not to worry, the franchise examiners issue renewal orders allowing them to sell franchises to unsuspecting buyers. It’s not right, in fact it’s outrageous, yet it happens.

Franchise Non-Registration States; FTC To The Rescue?
In the balance of the non-registration states (36) we’d be able to sell franchises with impunity and no regulatory oversight. Of course, there’s the Federal Trade Commission’s FTC Franchise Rule that applies in all states. But this only requires producing a franchise disclosure document – FDD. There’s no registration process with the FTC and they rarely get involved in franchise complaints. A 1993 government report found the FTC acted on less than 6% of all franchise complaints. The U.S. General Accounting Office reports that franchise complaints to the FTC from franchise owners increased ten-fold from 1997-1999. This dramatic rise is profound considering complaint data was only available through June 30, 1999. Since 1998, according to the FTC’s website, only one franchise enforcement action was taken against a franchise company. There’s just not enough money or resources available to the FTC, a situation that will only grow worse in the current econom y.

My point here is registration of a Franchise Disclosure Document with a governmental agency only means the franchise company paid a filing fee and forwarded its document. There is no due diligence undertaken by examiners in a registration state. So the real guardian of the franchise investment must be you – the franchise investor. Because of the complexities of franchise agreement provisions and offering circular disclosures the need for competent, professional advice is critical. Many of the critical disclosures are required only in a table, where the relevant contract sections of "boilerplate that bites" are listed, without going into any "details." If you’re not a franchise attorney looking for red flags, it easy to get duped.

Breakeven Point
Returning to the Franchise Disclosure Document, critical business information is NOT disclosed in the document, principally due to lobbying by the franchise industry. For example, the time it takes to reach the break even point – where revenues cover expenses – is not required disclosure in any franchise disclosure document. A bank would never loan money without this critical financial milestone, yet franchise companies let franchise buyers invest hundreds of thousands of dollars, often mortgaging their homes and tapping into savings and retirement accounts. What type of financial milestone must franchise companies disclose before franchise buyers risk what is often everything they have? The relevant disclosure, Item 7, only requires an estimate of what is called “Additional Funds,” a 90-day estimate of working capital needs. Because many new franchises can take a year, two years or more to reach the break even point, knowing only what it’s going to take to get you through the first 90 days is not helpful – in fact it may set you up for financial suicide. If you don’t have enough working capital to reach the break even point, which can be a year or more down the road, your entire franchise investment will go down the drain.

Financial Performance Of Other Franchise Owners
Another major shortcoming of disclosures in the Franchise Disclosure Document is not telling you how much money the franchises in the network are making. Instead of answering what is the most important question in a franchise investment decision, the franchise disclosure laws make this “optional” for the franchise company – they can tell you if they want to. If they decide to answer this critical question, it will be found in Item 19. But don’t hold your breath – more than 90% of franchise companies opt not to answer this question. It’s another bizarre reality in the world of franchising. Because they require complete monthly (and in many cases, weekly) financial profit and loss statements from their franchise owners, the franchise companies know exactly how much their franchises are making (or losing). But more than 90% decide not to say anything before you buy one of their franchises.

Asking Current Franchise Owners
Of course, current franchise owners are a potential source of information and a list of these are found in an exhibit to the Franchise Disclosure Document. My experience is most franchise owners exaggerate their financial performance or decline to share their finances with a stranger. Many of them I’ve spoken with over 28-plus years claimed they were making good money, when a studied examination of their financial statements revealed they were either losing money or operating at or below minimum wage performance. One couple invested $200,000 in a pizza franchise and were desperate to sell it eighteen months later. Their financial statements showed they were making about $0.50 (fifty cents) per hour. Fortunately, my client promptly lost interest in buying the franchise after listening to my analysis. The incredible thing is I discovered the franchise was subsequently sold to another person who operated the business for a year then filed for bankruptcy. There are many mor e examples of these franchise nightmares. Franchise "resales" where unprofitable franchises are sold over and over are another bizarre reality in the world of franchising.

Copyright 2007-2009 Kevin B. Murphy, B.S., M.B.A., J.D. – all rights reserved

For more informatiion, visit the Franchise Foundations website.

Imagine opening 20 new business locations without having to foot the bill for real estate, equipment and development costs or taking on any of the risk. Even more, imagine finding managers to run all those locations, who are just as committed to growing the company as you, and you dont have to pay them a dime. Finally, imagine that these managers will hire, fire and manage all employees as well as foot the bill for all operating costs and expenses. Sound far-fetched?

Not if you’re planning to enter the franchise industry, one of the fastest ways to grow a small business without breaking the bank. For many companies, franchising a business (or licensing) is a sensible way to achieve rapid, profitable growth without giving up any control or ownership. Going from a single location to a dozen in a couple years, or a hundred in ten years is possible and well-documented because fra nchise owner-investors put up all investment capital, shoulder all risk and assume all day-to-day operating responsibilities.

It’s expansion, using OPM – Other People’s Money. Also, the franchise company gets paid handsomely for teaching others the secrets of how to operate its business. First, theres the up-front membership or franchise fee of $20,000 to $50,000 paid for using the brand name and operating methods. In addition, there are continuing royalties of 5% to 10% of gross sales for ongoing advice and consultation. In essence, a franchise development program allows a company to get out of the trenches and become a highly-paid general overseeing its soldiers. Long-term options are also attractive. Build an empire and relax, or let the franchise company be acquired by an increasing number of large companies that look for small, but growing franchise companies. According to the International Franchise Association, 900 new companies have franchised in the last three years.

ENTERING A NEW BUSINESS
A company planning to franchise must realize it is entering a new business, offering an entirely different service (training & support) to entirely new customers (business owner-operators). This new business requires different skills, abilities and expertise. In the new business of franchising, it is critical to develop effective evaluation, documentation, mentoring, training and consulting skills. Since these new skills are rarely present within existing personnel, an outside franchise expert is needed to train existing personnel and plan the transition. The first step involves determining whether or not a business can franchise, and if so, what needs to be developed. Next, strategic franchise planning is necessary to create a “blueprint” for successful expansion efforts. Experience shows that, just like a building, the foundation developed at the beginning will create lasting consequences affecting the relative success (or failure) of the entire venture. Legal (franchise disclosure document, franchise agreements) and operational documents (franchise operations manual, franchise training program) are prepared and drafted and finally a franchise registration process is required in some 14 states, depending on which state(s) the company sells franchises. These phases are discussed below.

THE FRANCHISE FEASIBILITY PHASE
An indispensable step before any franchise development program gets underway is an analysis of the concept and business model. Has the concept been sufficiently proven in the marketplace? How profitable are existing prototypes or company-owned outlets? Franchising will not solve existing problems, it will only intensify them – and usually at a serious cost to franchise investors. Franchising should not be viewed as a method to raise capital, expand a business that has existing problems , or a way to get rich quickly. There must be sufficient profitability in the business model so that royalty and other payments can be made and leave the franchise investor with a sufficient profit. With a franchise feasibility analysis, a determination can be made about:

(a) whether franchising or licensing expansion ideas should be pursued, postponed or abandoned; and
(b) assuming a positive result in (a), what needs to be fine-tuned or developed from scratch for the franchise program.

Besides determining if and when the business can franchise, the analysis should also include providing guidance and direction so as much of the groundwork as possible can be done by existing personnel. This has proven to be a very effective approach and significantly reduces franchise development costs. If the feasibility analysis is positive, the other phases discussed below follow. My twenty-eight years of experience in the franchise industry lets me share a valuable in sight about franchise feasibility studies. Too many companies leap into franchising without doing a feasibility study, or if one is done it is performed by a franchise consultant or group that tells everyone good news – they’re all “franchise-able.” The vast majority of franchise feasibility studies I’ve done either identify areas that need attention before franchising makes any sense or tell the client to forget about it and pursue other options.

THE FRANCHISE STRATEGIC PLANNING PHASE
A successful franchise development program begins with a solid plan – a foundation for franchising. The long-term goal is to establish balanced, integrated, successful business relationships with qualified individuals who support the company’s goals and image. Creating an enduring relationship requires a comprehensive strategy that addresses all aspects of the franchise endeavor.

The starting point is a detailed analysis that covers:

(1) identifying profile characteristics of who will be the best franchise owners for the particular business;

(2) competitive positioning to make the franchise stand out from the other 3,000+ franchise companies;

(3) geographic scope – where and when will franchises be sold;

(4) analysis of the company’s organizational strengths and weaknesses relative to franchising;

(5) identifying the appropriate franchise organizational structure as well as staffing requirements and responsibilities; and

(6) structuring the franchise relationship for a balanced, win-win scenario.

What should emerge from this detailed analysis is a specific strategic plan and framework for guiding virtually all franchise efforts. Despite the long-term importance of the franchise planning step, too many emerging franchise companies enter franchising with no plan or planning – other than “lets try and sell a lot of franchises.” They rush through (or neglect entirely) the strategic planning process, thereby creating future franchise litigation land mines that are ticking franchise lawsuits waiting to happen.

Often, this is because they only utilize the services of a franchise consulting firm or franchise attorney, where little or no attention is paid to critical strategic planning, operational and organizational issues. Normally, these firms draft ” boilerplate” franchise disclosure documents, franchise agreements and franchise operations manuals based on a questionnaire completed by their client, who is presumed to have made all strategic decisions. The franchise documents are presented, along with an invoice and a handshake – hardly the ingredients for success in the new business of franchising.

THE FRANCHISE DOCUMENTATION PHASE
If the company has made doing a good job at the planning stage the number one priority, franchise documentation goals will be apparent. Proprietary and intellectual property assets (like operating techniques, customer information, recipes, formulas and methods) need to be identified and protected. A trade secret protection program is developed and implemented. The name, logo and tag lines should have been previously registered as trademarks or service marks.

franchise operations manuals
Franchise operations manuals and training progra ms are developed, often from scratch, to impart business operating skills to the franchise owner as well as ensure uniformity of products and services. The franchise operations manual and training program curriculum must be drafted with a particular focus. Certain topics, chapters and policies found in manuals for a company-owned chain, for example, are entirely inappropriate in a franchise environment, creating significant liability (lawsuit) issues for the franchise division.

I routinely find franchise operations manuals drafted by franchise consultants or do-it-yourself manual kitscontaining inappropriate chapters or topics. Not knowing where the bullets come from in franchise litigation, they proceed blindly ahead using “boilerplate” manuals where most (but not all) instances of “hamburgers” are changed to “tax returns.” The support aspect of the franchise relationship needs to be carefully considered, structured and reflected in the franchise operations manuals.< /p>

Deciding who writes the franchise operations manual is a relatively simple question to answer, yet many new franchise companies also fall into a trap here. Bewildered by the new business of franchising, with its legal requirements, franchise operations manuals, training programs, etc., they decide to delegate responsibility, usually to a high-priced franchise consultant who produces the operations manual and sometimes even the legal documents. Putting aside the practicing law without a license issue on the legal documents, does using someone to write your franchise operations manual who knows literally nothing about your business, ever make any sense?

The best practice approach, developed over almost three decades of my writing, editing and reviewing hundreds of franchise operations manuals is based on common sense. Let the true expert in your business write the operations manual. And who is that expert? Its usually the founder of the business or a handful of y our management personnel who know the business inside and out. Its true, an outside franchise expert should be involved in the process, but this should be limited strictly to a planning and editing capacity helping develop the overall Table of Contents, giving samples of writing styles and technicques, then reviewing each chapter after its drafted by you or your management team. This approach produces a professional, easy to use and update franchise operations manual. It also ensures the most efficient use of resources and talent.

franchise disclosure documents
Finally, and only after all of the above are underway, a Franchise Disclosure Document, similar to a securities (stock offering) prospectus, is prepared by competent franchise counsel and registered with various regulatory agencies to comply with applicable federal and state laws. This document can contain thousands of discrete disclosures within its twenty-three chapters and attached ex hibits, and obviously needs to be prepared by a franchise attorney. Doing it properly and with a balanced and fair perspective can help keep the company out of the courtroom later. In addition, a franchise registration process is required before any franchises can be advertised or sold in those 14 or so states having a franchise registration requirement. Having one firm author, edit and review all documents is not only cost-effective – it also avoids inconsistencies that can plague the franchise company as franchise legal pitfalls in the future (see discussion below).

RECOMMENDATIONS
My twenty-eight years of experience has demonstrated that in order for a franchise company to get off to a good start, a heavy emphasis should be placed on strategic franchise planning to manage future franchise relationships as discussed above. Then, before the franchise program begins, management needs training in how to effectively operate a franchise organizati on. At a minimum, the following programs should be in place before franchise marketing efforts begin:

1. Franchise Lead Processing System (sm):
Two key considerations for all franchise companies engaged in franchise marketing are the careful screening of franchise applicants and adopting the proper media plan, schedule and budget. Only the cream of the crop should be allowed to join the franchise network. Eliminating applicants at the entry stage is far easier than waiting for inevitable and costly problems later on. An examination of franchise networks plagued by troublesome franchise owners (who often ripen into future lawsuits) shows a lack of planning and attention to this relatively simple concept. Given the unlimited personal liability risk inherent in franchising, companies neglecting this important concept, or those using franchise brokers, are simply asking for trouble.

Before franchise marketing efforts start, a company should adopt a customized Franchise Lead Processing System that includes instructing key personnel in:

(1) adopting the proper organizational structure;

(2) defining the appropriate profile characteristics of prospective franchise owners;

(3) developing effective interviewing techniques, marketing materials, procedures and checklists;

(4) using a series of tests and other measures to ensure that inappropriate candidates are disqualified before joining the franchise network;

(5) detecting (and then avoiding) red flags that arise in the franchise marketing cycle; and

(6) adopting the appropriate media plan, schedule and budget.

2. Legal Compliance Program (sm):
A franchise lawsuit can result if inconsistent or misleading communications occur when a franchise is first sold. Most of the legal risk is franchising centers around what happens during the marketing cycle: the twenty-three chapters of disclosures in the franchise disclosure document as well as who said what, and when. Defending any franchise lawsuit, even a frivolous one, can be enormous. Franchise companies involved in franchise litigation are shocked to discover they have fallen into a quicksand that swallows up time and money without limit. The cost of prosecuting or defending even a “small” franchise lawsuit can quickly exceed $100,000, and up. Exposure can run into the millions. Although one study of franchise disclosure documents indicated 27 percent of franchise companies have a history of franchise litigation (slightly greater than 1 in 4), the real percentage is much greater and probably north of 50 percent. This is because only pending litigation and final judgments must be disclosed in franchise disclosure documents. Most franchise litigation cases, like other litigation cases are settled, so theyre only required to be in the franchise disclosure document from the time theyre filed until settled. After that, they vanish without a trace. And whether the chances of getting sued in a franchise lawsuit and getting embroiled in franchise litigation is greater than 1 in 2 or 1 in 4, who wants to get involved in a time-consuming, stressful and expensive mess?

It is almost impossible to avoid potential franchise liability unless a genuine program of education and instruction is conducted with marketing personnel as well as middle and executive franchise management. An integrated Disclosure Compliance Program that specifies rules and expectations (including legal rules in selling a franchise), manages franchise disclosure documents and controls the dissemination of all information is absolutely essential. It is also one of the best investments a franchise company will ever make. For all of the above reasons, the use of franchise brokers is definitely NOT recommended. Their statements (or other actions) made to “close the deal” will make the franchise organization (and the personal ass ets of its officers) liable for violations of federal or state franchise laws. This also explains why the overwhelming majority of successful franchise organizations set up their own in-house franchise marketing department so that actions and statements made during the franchise marketing cycle can be monitored and controlled within the framework of a Franchise Sales Control System (sm).

3. Franchise Sales Control System (sm):
Franchise Sales Control is the other half of the entire compliance equation. While legal compliance specifies rules and expectations, franchise sales control is the mechanism for detecting gaps and inconsistencies. When detected, their causes can be identified and corrected before injuring the franchise effort. A Franchise Sales Control System should be designed with this in mind, and should include a variety of feedback mechanisms to monitor performance and retrieve pertinent information for review by management. This not only increases the effectiveness of franchise marketing efforts – it also greatly reduces the likelihood that sales personnel will deviate from established procedures in selling franchises. Finally, a well-designed Franchise Sales Control System creates a complete back up file for every franchise sold that will qualify as business record evidence in the event of a future franchise dispute. It also satisfies the legal requirement of various states that franchise companies maintain a complete set of books, records and accounts of franchise sales. Since most of the legal risk in franchising arises during the franchise marketing cycle, a comprehensive Franchise Sales Control System is the companys best protection against the quicksand of franchise litigation.

4. Managing Franchise Relations:
As franchises are sold, the communication lines that develop between the parties will have a major impact on the success or failure of the ongoing franchise re lationship. Controlling who is brought into the network through the steps outlined above is the critical first step. Once inside the franchise network, franchise owners must be taught to realize they are members of a system of mutually dependent outlets, each working for the better of the entire network. Developing an awareness of this concept early in the relationship and implementing a franchise feedback system will create a positive attitude, encourage innovative ideas from franchise owners, ensure timely royalty payments and prevent franchise relationship problems later on.

1982-2008, Kevin B. Murphy, B.S., M.B.A., J.D. – all rights reserved

For more information, visit the Franchise Foundations website.

Millions of people dream about owning their own business. Having the independence that being your own boss brings, the security that no one can fire you, enjoying a good income – and for the most successful – the accumulation of wealth and prosperity. Unfortunately, the cards are stacked against a new small business making it big – or making it at all. An endless stream of problems makes competition from large, sophisticated chains too intense. Many new start-ups end as failures.

Buying a franchise represents a different approach to starting a business. For an upfront franchise fee plus ongoing royalty payments, the parent company teaches its business model and methods to the franchised-operator who shoulders all operating and financial responsibilities of the outlet. Some statistics are impressive: it is said over 40% of all U.S. retail sales are through franchised establishments. While franchise giants like McDonalds, KFC, H&R Block and Radio Shack are familia r, household names, franchises are available in a wide range of industries. The list of 3,000-plus companies selling franchises span over 100 different industry categories.

American Dream Or Nightmare?
But just as franchising represents a chance to get rich, it’s also a chance to get stung. An alarming number of franchised operators make less than the minimum wage, working seven days, sixty to eighty hours a week, pursuing an expensive and elusive American Dream that turns into a nightmare. Since the ongoing franchise royalty payment comes right off the top, as a percentage of gross sales or a fixed minimum amount, the franchise company gets an assured revenue stream, even if its franchised units are operating unprofitably and are sold over and over again to new, unsuspecting buyers. The internet is filled with comments of the many people who lost $250,000 and more on concepts like eBay Drop off stores (iSold It), 30 Minute Fitness concepts (Curves), The UPS Store, etc. Yet many of these companies continue to sell and resell franchises over and over again. How do they accomplish that? Because there are enough people who think they can “believe” their way to success, even with a concept or business that’s not working in the marketplace. As discussed below, in many cases franchise investment decisions are incredibly based on emotionalism, not on business logic or even common sense.

Ownership And Being Your Own Boss?
Pride of ownership and being your own boss are highly touted phrases in franchise recruitment ads. But these are more fantasy than reality. Although you get all the financial exposure, headaches and stress of business ownership, what do you really own? A franchise owner is merely licensing a trademark (or service mark) from a company that dictates every detail of business operations. So the real boss isnt you, but the company that sells you their franchise rights . . . and sea of franchise obligations.

Equity Build up?
But at least youre building up equity, the ownership value of the business as a going concern beyond your investment of money, to compensate for all those years of hard work and long hours – right? Wrong at least in the world of franchising. The franchise company reserves rights to acquire your entire business at below wholesale prices if their contract is not followed precisely. The acquisition rights provide for predetermined asset-based valuations, like book or liquidation value. These valuation methods provide bare minimum compensation (the used value of some file cabinets, office furniture, equipment, etc.) and are not generally used to determine the selling price of any business.

Absolutely no compensation is paid for established goodwill, the value of a business that is generating $X in profit or cash flow every month after years of effort, investment and expense thus eli minating the most valuable ownership asset. Of course, you may be able to sell your franchise to a third party for a sales price that includes an earnings-based valuation. But thats possible only if:
(a) you can find a buyer who is willing to live within the complexities of a franchise relationship, and
(b) you happen to own a franchise thats showing healthy profits.

What follows is a bottom-line franchise checklist and tips compiled by franchise attorney and franchise expert, Mr. Franchise, based on reviewing over 500 franchise offering circulars and twenty-eight plus years of experience in the franchise industry – including ownership of a very successful franchise. These factors to consider in making a franchise investment will help you eliminate 95% of the companies you are considering. Then, you can concentrate your efforts on the 5% “cream” of the crop” companies that may deserve consideration. This franchise checklist assumes youre suitable for and willing to live within the confines of a franchise relationship. It also assumes the franchise company:

(1) has itself successfully operated the concept being franchised for at least five years at multiple locations;
(2) is not plagued by franchise litigation and franchise lawsuits from disgruntled franchise owners;
(3) does not have unusually high franchise attrition rates (owners who have left the system); and
(4) has a balanced, fair franchise contract.

SOLD It An American Dream That Turned Into A Nightmare
An example of a franchise company in trouble that failed to meet basic threshold standards is iSOLD It, an eBay drop-off store franchise. The company started its one and only company-owned store in November of 2003. Just weeks later, on December 10, 2003 they filed an application to sell franchises. The California Department of Corporations didnt say What are you thinking? Youve only been in business a couple weeks, how can you even consider selling franchises? Nor did they require this be disclosed as a risk factor on the cover page of the Franchise Offering Circular, as it should have. Disclosure responsibilities ultimately rest with the company (and its attorneys), and this will become one of many issues in future franchise litigation.

Instead, the Department simply collected its $675 filing fee and issued an order declaring the franchise registration effective the next day – on December 11, 2003. Then the magic of franchise marketing took over. By 2006 the company had nearly 200 franchised drop off stores in operation and was touted by Entrepreneur Magazine as #1 in their list of Top New Franchises for 2007 and #17 on their Hotter Than Hot franchise list. Entrepreneur Magazine, which requires franchise companies to submit their FOCs (Franchise Offering Circulars) for supposed review each year before theyre listed, didnt consider the high attrition rate (franchise owners leaving the system) or the fact that the audited financials in their FOC showed the company hadnt operated profitably since 2004 as serious negatives and awarded iSold It the #1 listing for Top New Franchises of 2007. How did all of this happen? It’s yet another bizarre reality in the world of franchising.

The franchise company’s audited financial statements for the year ended 12-31-05 showed an operating loss of $1.1 million. Nine months later, in September of 2006, the net operating loss mushroomed to over $4 million.

In its November 3, 2006 Franchise Offering Circular, the table in Item 20 disclosed a total of 10 franchise owners leaving the system, yet a hand count of Exhibit D-3s Former Franchisees revealed a significantly different number 44. A similar discrepancy exists about franchise transfers. Item 20 says 12 transfers whereas Exhibit D-3 discloses 27.

In a long overdue letter distributed to franchise owners on April 5, 2007 , CEO Ken Sully painted a dire picture of an American Dream that had turned into a nightmare. Mr. Sullys letter admitted the company has not been profitable since 2004 (according to the audited financials, the company showed its one and only operating profit of $356,286 in 2004 before the precipitous downward spiral of 2005 and 2006). Over 60 franchised stores have closed and many more are struggling for survival. Mr. Sully observed Tragically, many individuals who believed passionately in the potential for the category have lost sizable investments, including homes and retirement savings.

Lost homes and retirement savings? How could such a travesty happen? I counseled a number of persons considering an iSold It franchise and warned all of them against the investment. Fortunately, they followed my advice. The concept was never proven in the marketplace before franchise efforts began, violating the most basic Franchise 101 precept. I also felt the management team l acked strong franchise credentials and the five-day training program was woefully inadequate. Finally, the franchise company was operating increasingly in the red and had a high attrition rate (owners leaving the system). It didn’t take a lot of brain power to see this was an accident waiting to happen. I predicted the bubble would burst and, sadly, it did.

Common sense could and should have prevented so many people from losing so much. Unfortunately franchise sales persons appeal to emotions (passions and potential, to use Mr. Sullys terms) and strive to keep common sense and business logic out of the buying equation. If a franchise company is able to obtain a ranking on a media list, the sale is even easier. Reprints of high rankings on lists, like Entrepreneur Magazine, are included in the package given to franchise buyers, who are lulled into a false sense of security and begin to stumble over each other in a rush to sign up before someone else takes their des ired territory (another favorite closing technique used to sell franchises).

iSold It! amended its FOC at the end of May, 2007 to add some long overdue risk factor language to the cover page of its Franchise Offering Circular. Hmmmm maybe they read my comments above and did a little research. The new FOC cover page risk factor language says their franchise system is still new and unproven. Thats very interesting. How can they say a franchise system, thats approaching its fourth anniversary, is still new? Maybe theyre looking at things from a how old is our universe perspective? The word unproven is another play on words. The system is most certainly proven in the sense that many people, to quote Mr. Sully, have lost sizable investments, including homes and retirement savings. So why not use this quote directly in their Franchise Offering Circular? Answer: cant sell any franchises that way.

In an August 31, 2007 Business Week article, CEO Sully claimed i t wasn’t necessary to disclose these risk factors in the FOC. His reasoning: “We told everybody that this is sort of like the wild, wild West” he says. “It’s a brand-new concept and nobody knew for sure where it was going.” Disclosure was added to the UFOC recently, he says, “because of the number of stores that weren’t understanding the complexity of the business.” Hello? You don’t tell your franchise investors after the fact what you were required to disclose in the FOC before they bought so they could make an informed investment decision. That’s the purpose of franchise disclosure laws. And claiming written disclosure of risk factors in the FOC is not necessary if a prospective buyer hears a salesman’s verbal wild, wild West story ignores franchise disclosure responsibilities and is really an admission the company failed in this regard. With its amended FOC, the company incredibly continues marching forward with franchise marketing efforts.

Now, lets consider t he franchise checklist and factors to consider before any leap into franchising.

INDUSTRY TREND
Is the franchise in a cutting-edge industry that is doing well currently and is projected to do well in the future despite any economic slowdown? Education and home-improvement services are stable categories. Food is over-saturated generally and, except in exceptional circumstances, is not worth the high investment, long hours, headaches and marginal income.

TOTAL INITIAL FRANCHISE INVESTMENT
In general, don’t expect a franchise that requires a five-figure initial franchise investment to produce a six-figure income. As with most things in life, you get what you pay for. On the other hand, dont assume a six-figure investment will lead to a six-figure income level. Be realistic and conservative. Is the total initial franchise investment range (including working capital) $125,00 or less; and the maximum investment less than $200,000? You can find solid companies in this investment range if you’re willing to look around.
Don’t forget to consider long-term financial commitments, particularly the real property lease (see discussion below under “LEASING AND LOCATION”). Also, the working capital estimate (called additional funds in Item 7 of the companys franchise offering circular) does NOT cover operations up to the break-even point. It only covers a short initial phase (usually only three-months) of operating costs As the break-even point (where revenues cover all operating costs) may not happen for one, two or more years, knowing only what its going to take to get you through the first 90 days is not helpful in fact it may set you up for financial suicide. In many cases, reaching the break-even point can require more reserve funds than the total initial capital investment. Dont ever forget the name of Item 7 in the Franchise Offering Circular: Initial Investment. If you dont have enough reserve capital to reach the critical break-even point, your entire investment will go down the drai n and franchise failure occurs.

One franchise owner in a relatively low investment and low operating cost window cleaning franchise said his biggest surprise was how long it actually took his franchise to be profitable. Going in, he thought it would take 12 to 15 months. It ended up taking twice that time. Fortunately, he had enough reserve capital to make it there, but declined to say what his actual franchise profits or income level were once he reached “franchise profitability.” If you’re operating just above the break even point and making less than minimum wage, is that anyone’s definition of success?

REAL BUSINESS
Is this a legitimate retail business, as opposed to a “work out of your home” operation? The vast majority of work out of your home concepts produce marginal income at best.

FRANCHISE MANAGEMENT EXPERTISE
Does the management team of the franchisor (the company selling you the franchi se) have executives with demonstrated past achievement and experience in operating a franchise company (not just persons who have sold franchises)? If not, this is a big RED FLAG. Many companies enter franchising and fail to realize they are in a brand new business – one requiring entirely different management skills and abilities to navigate franchise relationships. A seasoned franchise management infrastructure must be in place. If the franchise management team lacks strong franchise credentials, or does not receive ongoing advice from qualified individuals, you might as well take a trip to Las Vegas with the money you’re intending to invest. Your chances of making vs. loosing money are roughly equal.

NORMAL WORKING HOURS AND DAYS; SUFFICIENT FRANCHISE INCOME LEVEL
Will the nature of the business allow you to work a normal five-day, forty-hour workweek? Life is too short for the seven-day, sixty to eighty hours a week, workaholic lifestyle that destroys health, family and pocketbook. Financially, we’ve calculated the true hourly rate for franchise owners who work these workaholic hours and discovered many are making far less than the minimum wage. One couple who operated a $200,000 fancy pizza franchise in an upscale mall were shocked to discover they were making fifty cents an hour each. Hardly an income level to recoup or justify the franchise investment. Many more fast-food franchise operators make even less, or operate at a loss until their funds, retirement savings, homes, etc. are exhausted. Buying a franchise in a non-food industry doesn’t necessarily improve the franchise profit picture. In a 2006 article “Mail Boxes Etc. Owners Fighting UPS Conversion,” a Mail Boxes, Etc. franchise owner who operated his franchise since 1993 reported profits for a typical MBE store like his were $16,000 per year after paying royalty and advertising fees to the franchise company. That calculates out to about $8.33 per hour for a forty-hour work week, approximately the wage of an entry fast-food worker.

Another major shortcoming of disclosures in the Franchise Offering Circular is not telling you how much money the franchises in the network are making. Instead of answering what is the most important question in a franchise investment decision, the franchise disclosure laws make this optional for the franchise company to answer or not. If they do answer this critical question, it will be found in Item 19. But dont hold your breath more than 90% of franchise companies decide not to answer this question. Its another bizarre reality in the world of franchising. Although they collect complete monthly (and in many cases, weekly) financial profit and loss statements from their franchise owners, and know exactly how much their franchises are making (or losing), more than 90% decide not to share this information before you buy one of their franchises. A number of franchise salespersons have told persons asking this question: “the franchise laws don’t allow us to answer that question.” Nothing could be further from the truth.

And just because youre a business executive making a 6-figure income now, dont assume this income level will be duplicated in a franchise investment just because the company approves your application. One such executive, despite a plethora of negative feedback from current and past franchise owners whod lost everything, marched forward with her franchise investment in a 30-minute fitness concept. Despite her 6-figure income, she didnt invest a dime in professional franchise evaluation advice and stated she was taking a leap of faith, hoping to build her wings on the way down. Build her wings on the way down? Sound’s (and is) crazy, but this happens all the time. Due to the ploys of the franchise salesperson, too many franchise investment decisions are based on emotionalism. Prior business skills, business sense (and even com mon sense) are short-circuited. Needless to say, if this business executive made a similar investment decision for her corporate employer paying the 6-figure salary, she would be promptly fired.

MINIMUM NUMBER OF EMPLOYEES
Can you operate the franchise business with 6 or fewer employees? Managing dozens (or in the case of some fast-food operations – hundreds) of minimum-wage teenagers who are constantly quitting or simply not showing up for work is a royal pain in the ….. Well, you know what we mean.

LEASING AND LOCATION
For most retail franchises, the triple net lease of the location is the biggest financial commitment, larger than the total franchise investment. Yet, the typical real estate lease and its ramifications are not required disclosure in any Franchise Offering Circular (FOC). For example, an estimate that you’ll need 2,000 sq. feet of space with expected rental of $5 to $10 a foot per month is normally disclosed in the Franchise Offering Circulars initial investment table as Leased Real Estate $10,000 to $20,000. A footnote to the investment table may say assumes 2,000 sq. ft. at $5 to $10 a foot.

But, that’s only the beginning of a much longer story. The lease is normally a 5 to 10 year triple-net lease. So, the financial commitment made when the lease is signed is at least $600,000 (at $5/foot for 5 years) to $2,400,000 (at $10/foot for 10 years). And this doesn’t include substantial, additional obligations to pay all of the landlords yearly property taxes, insurance, common area operating expenses, etc. With hundreds of thousands (or even millions) of dollars in financial obligations at stake, personal guarantees and other risks, more than just a warm, fuzzy feeling that everything will work out is necessary.

Key questions to ask here:

(a) is the franchise you’re considering one that can be operated in a low rent commercial business zone? Avoid franchises requiring the costly expenses and triple-net leases of a visible retail storefront and the extravagant rent associated with areas of high foot traffic, like shopping malls. You’ll sleep much better at night.

(b) What’s your total financial commitment under the lease?

(c) Do you have sufficient liquid assets (or a willing, sufficiently liquid third party guarantor) to meet the landlord’s lease qualification standards?

If you dont, you might as well forget about investing in the franchise. Or even worse, getting involved in a questionable franchise and business model, then realizing you’ve made a big mistake – and discovering you’re on the hook personally for a $500,000+ lease obligation.

A related real estate variant is securing a lease with a sufficient term (with renewal options) to recoup your investment and make a profit. In July, 2005, an attorney in her mid-forties purchased an existing ice cream store franchise for $375,000 believing it to be a once-in-a-lifetime opportunity. Trading her briefcase for an ice cream scoop, she attended the companys 11-day Ice Cream University and assumed operations of the ice cream store. Turned out it was an opportunity but only to inherit a store with numerous problems. These problems included (but were not limited to) a lease that would expire the following summer and a landlord whod previously announced the lease would not be renewed. Rather than pay the $100,000-plus in relocation costs, the attorney returned to the practice of law, but is still paying off $350,000 remaining on the loan taken out to buy the once-in-a-lifetime franchise opportunity. Although theres a franchise lawsuit pending, its yet another case of franchise fever – this time attacking a professional no less. Who would ever commit to paying $375,000 for an existing retail f ranchise without checking out the l-e-a-s-e? Sounds like another bad attorney joke, but I can guarantee shes not laughing. Business fundamentals were ignored or forgotten in the rush to acquire the opportunity of a lifetime. And Im willing to bet not a dollar was spent on competent, pre-investment franchise advice.

IMAGE AND LIFESTYLE
How does flipping burgers, scooping ice cream and cleaning restrooms fit the image of what you want to do for a living? Investing in a franchise will be the most important financial and psychological decision you ever make. Many prospective franchise owners fail to realize theyll be wearing virtually every hat at some point, from salesperson to bad-debt collector, from firing employees to bathroom janitor. The franchise owner is usually the first one to arrive in the morning and the last one to turn out the lights late at night. And youll need to forget about corporate perks like paid vacations, paid holidays a nd sick pay. In their place, substitute financial pressures, unexpected events and money draining out of your savings and retirement accounts. Does the typical working day and responsibilities of the franchise you are considering fit your personal image and desired lifestyle? You can experience some of this BEFORE you invest by working for a couple weeks in an outlet owned by one of the existing franchise owners.

TRUE FRANCHISE VALUE
Buying a franchise from a blue chip franchise company that has spent decades and hundreds of millions on advertising to develop their brand can make a lot of sense. These companies have true franchise value that compensates for the long-term disadvantages of ongoing royalty and advertising fund payments. Often these additional payments literally mean the difference between earning a profit and operating at a loss. In unknown franchise chains with little or no brand recognition, you the franchise buyer are buildi ng their brand from scratch, and are saddled with severe, long-term competitive disadvantages.

In these unknown franchise chains, you have to ask yourself a simple, common sense question. What value is the company giving you that you couldnt learn on your own by working at one of their locations as an employee for a couple months? Franchise truth be told, what most unknown franchise companies are selling is just a business opportunity teaching you how to get into a new business venture. But unlike a business opportunity seller that charges a one-time fee to help get you into business, they call it a franchise and charge ongoing royalty and advertising fees like theyre a McDonalds or other blue chip franchise company.

The reality is theyre not a McDonalds type franchise – not even close to one. In the majority of these lesser-known franchise chains, youd be much better off starting an independent business on your own. You can learn most or all of their so-called secrets in the franchise interviewing process and by talking to (and possibly working a short time for) existing franchise owners.

FRANCHISE PROFITABILITY & SUCCESS
Dr. Timothy Bates study released in 1993 by the Entrepreneurial Growth and Investment Institute in Washington, DC (and another study published in 1996) was the first to compare start-up costs, franchise profitability and franchise failure rates for franchised vs. nonfranchised firms. In his analysis of some 7,270 firms over the test period, Dr. Bates found that startup capital for a franchised business averaged $85,293 compared with average startup capital for nonfranchised firms of $30,156. In 1987 nonfranchised firms reported average pre-tax net income of $19,744 as compared to a loss of (-$1,548) for franchised firms. Dr. Bates concluded Despite their larger revenues, much better capitalization, and their supposed advantages of affiliation with a franchisor parent firm, the franchisees lag behind cohort young firms in profitability and rates of survival.

The franchise companies ignore both studies by Dr. Bates, pretending they never happened. Instead, other techniques are employed. For example, some franchise companies use misleading success statistics to sell their franchises. Their promotional materials say franchises generally enjoy a 90% success rate, compared to less than 20% for independent firms. These figures are based on unverified information supplied thirty years ago by a select, non-representative group of franchise companies. A full third of the companies receiving questionnaires elected not to participate. There was no verification of any of the information supplied by the franchise companies, not even random, spot checking. Nor was any effort made to identify franchise companies who, along with the franchise owners in their chain, had gone out of business.

Even more recent studies saying nine out of ten franchise owners (90%) consider their franchise to be somewhat or very successful also suffer from serious methodological flaws. These were simply telephone surveys of franchise owners who were still in business and asked to say (with absolutely no definition of the term successful) whether they felt their business was very unsuccessful, somewhat unsuccessful, somewhat successful or very successful. Franchise owners who had gone out of business or bankrupt were not included in the survey.

Even if terms are defined and a representative sample obtained, franchise owners can be a quirky group. Hence the need, as in Dr. Bates’ studies, for review of financial data. I remember evaluating an existing franchise for a client. I asked the current owner of the franchise if his business was successful. He said it was very successful. But his financial statements revealed a different picture. Hed never taken a dollar out of the business for himself, never made a profi t in two years of operation, and was on the verge of bankruptcy. Another owner of a bakery franchise, interviewed by Business Week, says being successful in franchising means adjusting your definition of success. He says he makes a profit, but declined to say what it is, or if he’s ever recouped his $250,000-plus initial franchise investment. Incredibly, he insists he’s in business for lifestyle reasons, not profit reasons. Huh? Probably a quote from the company’s franchise recruitment materials. In the world of franchising success and “profitability” are very subjective terms.

FRANCHISE BROKERS WHO FIND YOUR PERFECT MATCH?
Does the franchise you are considering have its own in-house marketing department, or does it utilize outside franchise brokers? The use of franchise brokers is a definite red flag. First, it indicates the franchise company is not very serious about who it lets into the franchise network, or even worse, they’re desperate t o sell franchises. Second, franchise brokers receive a substantial commission up to 50% or more of the franchise fee youre paying the franchise company. Franchise Broker Realities: (1) Their service is definitely not “free” despite these and other similar misrepresentations. It’s really common sense – how could anyone offer a “free” service and survive in business? Unfortunately, the common sense part of the brain tends to short circuit when the franchise brainwashing process begins. The simple truth is if you buy one of the franchises they’re hawking, your money goes to the franchise company, then into the broker’s pocket. If anyone ever calculated how much time they spend to collect their $15,000 or $20,000 commission, it’s probably a lot more than a brain surgeon earns. (2) Franchise brokers definitely do NOT have your best interests in mind. They will do or say whatever they have to in order to close a deal and earn their commission.

Many franchise brokers cla im they will help you find a franchise company that is the perfect match for you. In the beginning it sounds good. Theres some personality testing and review of your personal finances. At the end of the day, it turns out they only represent (and steer you towards) a handful of small franchise companies youve never heard of before. A detailed analysis often reveals these highly touted franchises produce mediocre or even below minimum wage financial performance. Yet franchise brokers don’t mention this, and individuals continue to rely on their recommendations, believing the broker represents them. Nothing could be further from the truth.

Also, many franchise brokers call themselves franchise consultants. A franchise consultant is usually an independent adviser who offers advice to others (usually franchise companies or firms that want to franchise their business) for a fee. This makes their advice more impartial in theory as long as they are not compensated by thir d parties. Because they are not legally required to disclose actual or potential conflicts of interest, its important ask questions. For example, if you’re using a franchise consultant who is recommending the best franchises, are they paid anything by the companies on their list? This could be a commission, kick-back or consulting fee. As mentioned, many franchise brokers call themselves franchise consultants to hide their true identity. So, make sure if youre dealing with a franchise consultant, he or she is not really just a franchise broker in disguise.

FRANCHISE DISCLOSURE LAWS
The franchise disclosure laws, while requiring franchise companies to give you certain, limited information, dont come close to protecting your interests. For example, as discussed above, Item 7 of the Franchise Offering Circular only requires an estimate of additional funds for 90 days as part of the investment information. But economic reality is you need to know the additional funds youll need to reach the break-even point, which can be years away, or your entire initial investment will go down the drain. Youd think this type of information would be required by franchise disclosure laws, but its not.

FRANCHISE REGISTRATION LAWS
Dont ever assume that because a company has registered its Franchise Offering Circular in your state, someone at the state has approved or reviewed the document in your favor. Franchise registration is obtained by simply forwarding documents and paying a filing fee – period. In most cases, franchise offering circulars are given an extremely limited review to ensure state-specific disclaimers are present.

I remember filing a registration application for a new franchise company in a state with a reputation for being one of the toughest franchise registration law states in the country. After the three-week review period set forth in the statute had gone by, and not he aring anything, I called the examiner assigned to the application. After looking through his files, he finally found my clients offering circular and application. He apologized for entirely misplacing the file and promised to immediately review the application and call me back. Ten minutes later, he called to say he’d finished and was making the registration effective that day. Ten minutes of review and the franchise company was given the state’s green light. This is not an isolated case – it happens all the time.

WHAT STANDARDS MUST A FRANCHISE COMPANY MEET TO SELL FRANCHISES; ARE THERE ANY REQUIREMENTS TO FRANCHISE A BUSINESS?
Incredibly, the answer is – none. There are no minimum standards or requirements to franchise a business except preparing a Franchise Offering Circular. It’s yet another bizarre reality in the world of franchising.

You and I could have no background in any business, form a new corporation or LLC, capitalize it with only $1, put together a Franchise Disclosure Document and file it with any franchise registration state. While the offering may be subject to an impound or escrow requirement because of the low capitalization ($1), wed still get registered and be able to sell as many franchisees as we want.

In these 14 franchise registration states, we may not be able to receive any money until each franchise actually opened, but simply posting a bond would alleviate this difficulty in the franchise registration states. And in the vast majority of states there are no franchise registration laws, so wed be able to sell franchises and collect fees with impunity once we compiled our Franchise Offering Circular. The federal FTC Franchise Rule doesnt protect against this risk either it only requires disclosure (i.e. provide a Franchise Disclosure Document) and has no registration component or minimum standards for franchise companies.

Basic investor protections and requirements found in both federal and state securities laws for over 50 years were never carried over to franchise investments. While most non-blue chip franchise companies could never even qualify to sell you a single share of stock in their company, they are entirely free to collect unlimited franchise fees, ongoing royalties, equipment and other purchases, as well as cause you to incur financial obligations totaling hundreds of thousands of dollars, or even millions in some cases. This isnt information youre likely to find in the glowing articles about franchising and franchise companies prevalent in the media.

CLOSING REMARKS
Remember, you are the only guardian when it comes to your franchise investment. Its definitely an environment where the phrase Buyer Beware applies. So, before you sign on the line and make what will undoubtedly be the most serious financial and emotional commitment of your life, get all the facts and figures.

One couple I counseled after-the-fact, invested $2 million in a new franchise company. The contract they signed gave them no right to terminate, no matter what the franchise company did or didnt do. Of course, the contract gave the franchise company unlimited termination ability, a right it had exercised. The franchise companys management team had no one with experience in running a franchise company. Incredibly, the couple had not spent a dime on legal or business advice before investing $2 million. The once friendly franchise company had transformed into a formidable foe and was poised to take over their franchise. Sadly, this happens too frequently in franchise investments. Decisions are made on fuzzy feelings and emotionalism. In an effort to save a couple thousand dollars, franchise investors risk homes, retirement savings, everything they have. Then they scratch their heads in amazement later on after inevitable and often horrific problems develop, wondering how they could have been so nearsighted.

Another indispensable level of inquiry is whether youre getting true franchise value and whether youd be better off doing the business on your own. In the overwhelming majority of franchises touted by unknown companies, franchise value isnt there and doing the same thing independently makes better economic sense and actually decreases the risk of failure.

Finally, and this applies to franchise investments as well as investing in any business venture, develop a plan to succeed but also plan a franchise exit strategy that minimizes financial risk in case things don’t work out. Both plans need to be thought through before the investment is made. Don’t wait until problems develop to start thinking about a franchise exit strategy – by then it’s usually too little, too late.

For more information, visit the Franchise Foundations Website.

1990-2008, Kevin B. Murphy, B.S., M.B.A., J.D. – all rights reserved