In this video, Minnesota franchise attorney Aaron Hall defines the franchisor, the franchisee, and their relationship. Aaron also covers some things to watch out for before you buy into a franchise.
People who are looking at buying a franchise, like McDonald’s or some small company, often have a lot of decisions to make and they are a little overwhelmed with the process. Now, a franchisor is like the McDonald’s corporation, they are the ones offering the franchise opportunities. The franchisee is the individual business owner who is looking at buying into this big conglomerate. Now franchises can be anywhere from $5,000 a franchise to $300,000 or even more, it really depends on what are you getting from the franchise that is going to drive that cost.
Franchisors, again that is the big conglomerate wanting to get people to buy a franchise, get money two ways. One, by the franchise fee paid in when some new person enters into a franchise agreement. Second, by ongoing fees and sales of the franchise’s products or marketing materials. Sometimes a franchisor has a heavy fee at the beginning, and not much of a fee on an ongoing basis. That generally means they are not going to provide much support on an ongoing basis. Sometimes a franchisor does not have a high fee so there is not a high barrier to entry to get in, but you are required to buy your products or pay a marketing fee to them, which means a franchisor is going to make money year after year after year, but in return should be providing more support to you as a franchisee.
Every franchisor is required to be registered in the state of Minnesota before they are establishing franchisees in the state. So, first you should make sure before buying a franchise that the franchiser is actually registered. It is a big red flag if they are not and the state regulates franchisors in order to protect your rights as a potential franchisee. So that is something important to check ahead of time. We will cover a few other tips and ways to protect yourself as a franchisee in the moments ahead.