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Welcome to 2009, a year that is sure to be interesting, challenging, and hopefully lucrative for franchisees and franchisors alike.

We just couldn’t let 2008 pass with pointing out an excellent article from the December issue of Business Week magazine that spells out the virtues of franchising.

The article offers prescient advice about some of the important practicalities involved in franchising, including utilising top-notch consultants and employing sound legal advice.

Also featured are three important questions prospective franchisors should ask themselves before commiting themselves to franchising:

1. Firstly, is your flagship business successful? Your flagship’s success will provide the blueprint to a thriving franchise operation.

2. Is your business solely reliant upon your presence? If work is stopping you from taking a vacation, handing over the reins of your franchised business to a manager may prove extremely difficult.

3. Is your business idea simple enough to be franchised?

“Any business that requires a specialized skill or creative talent—say, a restaurant with a complicated menu or a boutique clothing store—isn’t ideal. Relatively simple concepts tend to do the best because they appeal to a diverse pool of would-be franchisees and are quick to launch.”

If you’ve answered ‘Yes’ to these three questions, odds are, you have a business concept that’s perfectly suited to franchising.

Stick with Franchise Direct this year for all the latest news from the world of franchising.

As the year winds down, one question that continues to pop up – be it on radio or TV or in conversation – for people in the small business world is: what constitutes a recession-proof business?

As we all know, there is no wishing away the economic downturn at this stage. It has quickly become part of our lives and the most opportune investers are trying to position themselves with the business most able to weather a bad economic stretch.

There are a lot of theories about which industries are recession-proof. It’s certainly a subject that we’ve discussed on this blog. The truth is, there’s no way of exactly saying, as each recession differs from the one that precedes it. Interestingly though, Scott Shane, who writes for the website smallbiztrends.com and teaches entrepreneurial studies, compared data from the last two recessions (1990-1991 and 2001-2003) in search of trends among the small business that succeeded.

Shane used pretty rigorous criteria to determine a recession-proof business. A company had to experience a 20% increase in each of the following categories to be considered recession-proof: the number of establishments; the number of employees; the dollar amount of payroll; the number of establishments with 20 or fewer employees; the number of employees at establishments with 20 or fewer employees; and the dollar amount of payroll at establishments of 20 or fewer employees.

Pooling all of his data together, Shane found only a handful of industries that experienced booms as the rest of the economy slumped: banking-related businesses, accident and health insurers, health practioners and business consultants.

The findings are highly interesting, indeed. One thing Shane admits is that every recession is different, and so it is rare to see a business thrive in two recessions. As for thriving in three recessions, banking-related businesses are facing into a tough few months given the collapse of Wall Street. The future may look brighter for business consultants and insurers, though.

Shane also makes two other points:

• Some industries grow at a steathfully during a recession.
• Insurance, health care, and consulting tend to be recession-resistant industries for people running small businesses.

As for his second point, Franchise Direct brings you some of the most vibrant insurance, health care and consulting franchises in the industry. Find out more today.

Even at times of economic uncertainty, turnkey businesses continue to be an appetizing prospect for people serious about being their own boss.

For those unfamiliar with the phrase, a ‘turnkey’ franchise is essentially one where the franchisee can walk in on the first day, and in effect ‘turn the key’ on their new business.

This is because the business owner has provided virtually every element required to starting the business, arranging everything from site location to lease signing to construction of the unit to the purchase of essentials for launching the business, and even in some cases, the hiring and training the staff.

The popularity of turnkey business raises an interesting question for franchisors: are franchises turnkey businesses? The answer depends. Some franchises owners go out of their way to provide every resource for new franchisees. But the flexibility built into franchising means that some companies will leave the business preparation completely to the franchisee.

If you’re a prospective franchisee, you have the freedom to choose the opportunity that’s right for you. Perhaps you’re a first-time franchise owner and you’d like to eliminate all of the hassle from getting your business off the ground. In that case, a turnkey business might be the right opportunity. But maybe you’d like to micromanage your business and want a hand in every aspect of its preparation. Turnkey business might not appeal to you.

The beauty of franchising is that there are many different opportunities in a range of businesses. Turnkey businesses are just one kind of model. Franchises themselves aren’t necessarily a turnkey business, but if you’re looking for a turnkey opportunity, Franchise Direct will find the company that’s right for you.

Everything you’ve ever wanted to know about the legalities of franchising are now available in An Introduction To The Laws Of Franchising, an exhaustive, 452 page tome authored by attorneys David J. Kaufmann and David W. Oppenheim of Kaufmann, Feiner, Yamin, Gildin & Robbins. By all accounts, this book is an essential companion for franchisors.

The book includes all the latest state requirements for franchise, tips for acceleratingthe  franchise registration process and a variety of information intended to help franchisors achieve compliance.

Click here for more information on purchasing the book.

The Federal Commission (FTC) mandates that the prospective franchisee must first acknowledge the receipt of the Universal Franchise Offering Circular (UFOC) 14 days before the Franchise Agreement can be signed or any money paid to the franchisor. What is the connection between the FTC and franchising?

The FTC was created in 1914 – an era that witnessed the rise of monopolistic business trusts that stifled competition. The FTC is charged with the mission to prevent unfair business practices that thwart competition in commerce. Over the course of the 20th century, the US government enacted more laws giving the FTC stronger authority in pursuing and enforcing “unfair an deceptive acts or practices.” It is the only federal agency that has jurisdiction over both consumer and competitive business interests in various sectors of the economy. Basically, the FTC acts as a watchdog to stop actions that interfere with consumers’ right to make an informed decision regarding business opportunities.

Since franchisors compete against each other to recruit franchisees, the FTC regulates how franchisors present themselves and their business proposition to prospective investor franchisees. The franchise investment process therefore must conform to the FTC’s Franchise Rule, which governs what franchisors must disclose to prospective franchisees before any contractual agreement is signed. This rule theoretically eliminates unfair or deceptive practices during the franchisee recruitment process.

The UFOC and 14-day rule are direct results of the FTC Franchise Rule, which as a trade regulation rule,  has the full force and effect of federal law. Federal and state courts have ruled that the Franchiser Rule can only be enforced by the FTC, who has the authority to seek injunctions, civil penalties, and compensation for consumers when businesses engage in deceptive practices.

The Franchise Rule basically imposes six different requirements regarding “advertising, offering, licensing, contracting, sale or other promotion” of a franchise:

1. Basic Disclosures: the Franchisor must give investors a basic disclosure document (the UFOC) 14 days before any contracts can be signed.

2. Earnings Claims: if the franchisor offers earnings claims, there must be a reasonable basis for doing so, and the proof that validates the claim must be supplied to prospective franchisee.

3. Advertised Claims:  applies to advertisements that make earnings claims, and mandates that such ads include the actual percentage of existing franchisees who have realized those earnings.

4. Franchise Agreements: the Franchisor must supply its standard Franchise Agreement along with any other contracts when it delivers the basic disclosure documents.

5. Refunds: Franchisors must refund deposits and initial payments according to the conditions regarding refunds detailed in the disclosure document.

6. Contradictory Claims:  this prohibits franchisors from making claims in any promotional materials or by word of mouth that contradict the information in the disclosure document.

Failure to comply with any of the six requirements makes the franchisor liable for Franchise Rule violations. Beyond these six basic requirements, the Franchise Rule also stipulates specific disclosures about the business relationship between the francshisor and franchisee, investment and fee requirements, trademark usage, and more.

The UFOC is the disclosure document intended to meet compliance with the FTC’s Franchise Rule. The FTC does have its own disclosure form, but most franchisors rely on guidelines established by the North American Securities Administrators Association (NASAA) for detailing the 23 items found in the UFOC.

A prospective franchisee should look at the UFOC as a combination Bible, dictionary, and encyclopedia that defines the franchise business, operations, finance, marketing, support – all the responsibilities and expectations of both the franchisor and franchisee. The NASAA requires that a UFOC be written in “plain English” and, though this seems helpful and logical, any prospective franchisee should seek legal advice from, and a thorough review of the UFOC document, by an lawyer experienced in franchise contract law.