Forming an entity really has nothing to do with raising money. If you are going to share equity with another person or persons, whether they are active or passive, be sure to get advice from your accountant and attorney about the best structure for your deal. Just please don't hold a business as either a sole proprietorship or general partnership. The most common entities are C-Corp, S-Corp, LLC, or Limited Partnership. Go to www.legalzoom.com for more explanation of the differences between these entities.

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Let me see. You are paying the franchisor a franchise fee, investing a lot of money to open the location, paying the landlord a lot of money, and then paying the franchisor weekly royalties and advertising fees. Then the franchisor wants to turn around and use your money to compete with you by implementing a low-cost web-based channel strategy? This sounds like it could be potentially very damaging to your business.

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I don't think so. Most franchises are challenging enough for a highly motivated, completely focused owner to operate. Plus they are expensive to get into, require constant attention, and are difficult to exit. If running a franchise is not the primary focus of the owner, chances are it will not be successful. Plus, I doubt whether most franchisors would even allow this structure.

If the primary motivation for the question is create job skills for clients of the non-profit, then the non-profit would be much better off by reaching out to businesses in its locale and developing a training program that would place clients in those businesses.

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Most franchisors want to push as much responsibility as possible for the commercial lease to the franchisee. They do not want the landlord looking to them for security in the event that the franchisee fails in the business. It is always good for a prospective franchisee to understand exactly how much help they will be able to get from the franchisor on the leases. One clause that the franchisee should ALWAYS insist on is that the franchisee may sell the franchise to any other qualified franchisee of the system, and that the landlord automatically grants an assignment. And it is even better if the assignment is a full assignment, allowing the selling franchisee to have no contingent liability after the sale of the business.

There is a lot more to know about commercial leases and I cover the subject of commercial leases in some detail in "49 Insider Secrets" (www.49franchisesecrets.com).

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Who is telling you this? I'll bet it's someone who would get a payday from having you buy a franchise you don't care for. I think it IS important that a franchisee truly enjoys the actual business of the franchise. Trust me, there will be days, perhaps many days, when your love for the business is the only thing that keeps you motivated to work through difficult times. If you are in a business that you do not intrinsically enjoy, you will feel trapped, and you may not make the correct decisions for the business.

It is very important that you not only choose a business that you truly enjoy, but that you also are well-suited to the role that you will ultimately play in the business, e.g. managing other employees, sales, customer service, etc.

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Consider the self-interest of the franchisor. The franchisor invests NOTHING to get a store open, and yet starts making money the day the store opens, even if the franchisee is losing tons of money. The franchisor's primary motivation is to get as many stores open as possible. It is NOT to make franchisee's profitable. Therefore, a franchisor will almost always err on the side of being too optimistic about the potential of a new location. My strong recommendation is for a new franchisee to buy an existing operation. I cover this subject in an entire chapter in my "49 Insider Secrets…" eBook (www.49franchisesecrets.com).

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I strongly recommend against new franchisees building new locations, period. Building a new location requires significant skills that will only be used once, and that the franchisor typically does not train you in. Many expensive time-consuming and expensive mistakes can be made. To build a new location, you will have to find the location (not easy and very risky), negotiate the commercial lease (very specialized and dangerous), hire an architect, obtain all necessary governmental permits to operate, hire a general contractor, manage the architect, landlord, and general contractor, perform pre-opening marketing, hire and train an entirely brand-new staff, and if and when you finally get open, you're going to start out completely exhausted. And you really have no idea whether the location is going to be a good one until you open it and run it for a year. And remember that during this entire time, you have no revenue coming in. It will typically take 12 – 30 months to get a new location up and running.

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There are many ways to find businesses for sale. The most direct way is to ask the owner if he or she would consider an offer to sell. Also, go the Area Developer for a franchise you are considering and find out if they know franchisees who want to sell. Sometimes, the franchisor will have a structure for listing franchises for sale. Also, look online at www.bizbuysell.com, www.craigslist.com, eBay, and also Google. In California, there is a pretty comprehensive listing service known as www.bizben.com, and there may be similar sites in other states. Finally, check in with reputable business brokers in your area.

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In general, the answer is no. It's up to the franchisor whether they want to create opportunities that conform to the rules and regulations governing the operation of franchises in foreign countries. If you want to operate a franchise in another country, be sure to understand whether the franchise you are considering already operates there, or has plans to. You will not be able to do this on your own.

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If the terms are right, I think this is the only form of financing that is OK for a new franchisee to undertake. In a certain sense, this insures that the seller is invested in your future success. Be sure to get generous terms: a low rate of interest, interest only payments for the first number of years, a long amortization period after that, and a long time before a balloon payment is due. Also, be sure NOT to secure the debt with any other assets you may have, such as your house, car, retirement savings, etc.

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The value of this income is completely worthless to you. You cannot verify this, and you may not choose to operate in an illegal fashion if you buy the business. If the owner is taking money out without reporting it, then that is the total of the benefit that the owner should derive, and that income does NOT get added to the reported profitability.

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Running personal expenses through the business is completely legitimate as long as it is being reported accurately. This is a means of lowering the owners' tax rate, and is one of the advantages of owning a business. In general, the expenses can be added back onto the bottom line to determine actual profitability. Be careful, however, that the expenses are truly personal, and not completely necessary to the proper functioning of the business.

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Verify, verify, and verify. Look at the seller's financial statements, tax returns, sales tax returns, and sales reports to the franchisor. Note any discrepancies and thoroughly understand why there could be discrepancies. On the cost side, audit actual invoices from vendors for significant costs, and notice if there are any missing invoices. To calculate labor costs, look at the schedule in detail, and perform your own labor schedule and cost estimate. Be especially careful to note how much time the owner and the owner's family is contributing to the business without reporting it, in order to inflate the actual results. Have an accountant review the financials before closing on the business.

I cover this and other questions you need to ask franchisees before you make a commitment to buy in my "49 Insider Secrets…" eBook (www.49franchisesecrets.com).

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This is a very risky situation. You probably won't have a complete understanding of why the location is losing money. Even if it appears that it is due to poor management and control which you could improve, the results may be due more to market circumstances: perhaps the location is on the wrong side of the street, the surrounding community has other more attractive alternatives, etc. In addition, the actual losses may be larger than stated by the seller. When an operation is losing money, the owner typically cuts back on maintaining property and equipment, which will then be expensive to bring up to standard by the new owner.

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The rates themselves are dictated by the UFOC, and thus not negotiable, although they may change over time, if they change for everyone. However, the Franchise Agreement may provide some ability to negotiate when the fees begin.

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Most of the "free" franchise search consultants are commissioned salespeople who represent a limited number of franchises. So you won't get a full picture of all the opportunities out there that might match your needs. Also, they are only going to recommend that you build a new franchise location, which I recommend against for a first-time franchisee. For first timers, I recommend buying an existing franchise with proven cash-flow. I cover this much more extensively in my eBook "49 Insider Secrets You Must Know Before You Buy a Franchise" (available at http://www.49franchisesecrets.com/). The free franchise search consultants will almost never recommend that you buy an existing operation, which can be the most profitable way for you to get started.

You could also use a business broker, who will sell you an existing franchise, but again, they are on commission, and only make money when you sign up to buy a business.

Bottom line: be extremely cautious and skeptical if you use a consultant.

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I definitely do not recommend that brand new franchisees buy into a brand new concept. There is too much risk. The franchisor has not yet proven the viability of the concept in your particular market, and with a brand new concept, they may not have figured out either the marketing or operations. Then layer on your lack of experience in that particular franchise and your chances of success are further reduced. I recommend that first-time franchisees buy an established business first.

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The transition from running a successful business to franchising is enormous, and is no guarantee of success for the franchised operation. For one thing, the franchisor may have been successful because of unique local market circumstances. Or perhaps the leadership team has specialized knowledge or leadership qualities that may be difficult to pass on. In this case, the franchisor has to transition from running a business they know extremely well to running an entirely different kind of business: a franchise sales business. Being a good franchisor requires knowing how to sell business opportunities to the right buyers, documenting all aspects of the business, training franchisees (not just employees), being consistent across the entire franchise chain, understanding how to market the business in brand new territories, etc. Those skills are all different from what made the core business successful.

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