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- @053 CHAP ZZ
-
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- │ PROS AND CONS OF BUYING A FRANCHISE │
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- Many small businesses, particularly fast food restaurants
- and print shops, are operated under franchises from a large
- national company. There can be substantial advantages in
- operating a franchised business, such as the benefits of
- national advertising, training programs, and assistance in
- setting up and running the business. If the business you
- are investigating operates under a franchise, it will be
- vitally important to determine whether the franchise can be
- transferred to you, and, if so, to provide for the transfer
- as part of the sale in the agreement of sale. Also, you
- will want to carefully review the franchise agreement (with
- the help of your attorney) to determine whether the fran-
- chisor must approve the transfer, what the costs of opera-
- ting under the franchise are, and the other terms of the
- agreement. If the franchisor isn't a well-known and respec-
- ted company, you should contact your local Better Business
- Bureau (or the appropriate state agency that deals with
- franchising) to see if they have any information regarding
- the ethics and reputation of the franchisor. You do not
- want to sign on with one of the less-than-reputable fran-
- chising operations that charge substantial up-front or oth-
- er franchising fees for very little in the way of useful
- services.
-
- There are a number of excellent publications you can obtain
- that will help you evaluate various franchise opportuni-
- ties. For a listing of where to write for these resources,
- refer to the "FRANCHISE OPPORTUNITIES HANDBOOK," published
- by the U.S. Dept. of Commerce, or see Chapter 10.10 of the
- 250-300 page book we publish, "STARTING AND OPERATING A
- BUSINESS IN @STATE."
-
- TAX NOTE: If you do acquire a franchise, either from the
- franchising company or as a transfer from another franchis-
- ee, you may be able to amortize (write off) the cost of
- acquiring the franchise, under certain circumstances, for
- federal income tax purposes. Consult your tax adviser as
- to whether or not this will be possible in your case. If
- it IS amortizable, you may want to allocate a significant
- part of the purchase price for the business to the fran-
- chise, which could save you major tax dollars in the long
- run. However, tax law changes made in 1989 somewhat limit-
- ed these benefits, allowing 10-year amortization for lump
- sum franchise payments of no more than $100,000, but requir-
- ing 25-year amortization if the price exceeded $100,000.
-
- More recently, 1993 tax legislation has now further changed
- the rules. The 1993 law generally allows 15-year amortiza-
- tion of intangible items, including most kinds of franchises.
- (Periodic franchise payments, based on, for instance, a per-
- centage of sales, continue to be immediately deductible in
- most cases, and do not have to be amortized, unlike an up-
- front or lump sum payment for a franchise.) The new 15-year
- amortization period generally applies to intangibles ac-
- quired after August 10, 1993, but a taxpayer may elect to
- apply the new law retroactively to acquisitions after July
- 25, 1991.
-
- @CODE: LS
- In @STATE, franchises are illegal, unless approved
- by the State.
- @CODE:OF
-
- If you are considering buying into a franchised operation,
- you should find the following checklist useful once you
- have focused on a particular franchise opportunity:
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