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Finding Franchise Disclosure Documents

Uniform Franchise Offering Circulars, known as UFOCs, was a response to some unethical behavior in the 1960’s and 1970’s. Today franchises are regulated by federal and some state laws. The Federal Trade Commission (FTC) requires that certain information be disclosed to potential franchisees before a contract can be signed or any payment made. The information is presented to the prospective franchisee in the form of a document — the UFOC.The UFOC, contains information franchisors must provide to franchisees by law. UFOCs are deemed to be reliable and if the information provided is false, franchisors are subject to civil penalties. However, the FTC does not require filings. There are 13 states that do keep UFOCs on file, and 23 states that require business opportunity disclosure filings. The UFOC is designed to give prospective franchisees all the information relevant to a franchise offering. It is made up of three basic parts: 23 sections (called Items) describing various aspects of the franchise program; a set of the franchisor’s audited financial statements; and a copy of each form or contract a franchisee is expected to sign if he/she intends to buy the franchise. The UFOC is similar to a securities prospectus. It can provide the information you need to evaluate a company. An accredited franchise company, whether publicly traded or privately owned, must provide this disclosure document. The UFOC is most valuable for potential franchisees, potential franchisors, franchisors, investors, financial companies and suppliers to franchisees. You can obtain UFOC’s directly from the franchisor usually for free, from the California state franchise document portal, and from several online sources such as FreeFranchiseDocs.com which downloads and scans the documents from the California database. Cross Posted at: Let’s Talk Franchising [edited by Ryan on on Oct 20, 2007 @ 10:15PM]

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Franchise Earnings Claim Hall of Fame: Papa Gino’s

I received an email from Source Book Publications regarding Earnings Claim in Item #19 of the UFOC, I agree with Sourcebook that all franchisors should be required to submit an earnings claim statement (Item 19) in their UFOC. Given that submission of an Item 19 is entirely voluntary, only 20% of franchisors choose to do so. The reasons for non-submission range from the ludicrous to vaguely plausible. To myself and Sourcebook, it seems entirely one-sided to ask a prospective franchisee to invest in excess of $200,000 (on average) to “buy” a franchise without providing him or her with a clear understanding what he or she might earn from the investment. Although there are numerous variables that preclude franchisors from coming up with an exact projection of future Net Operating Income, the franchisors clearly have the ability to determine the historical sales and related expenses for operating units currently within their system. At a minimum, they can work backwards from royalty payments to come up with a gross sales figure. To the extent that they closely monitor and support their franchisees, they should have a good sense of average operating costs as well. Given this information and the latitude they have to provide as much detail as they see fit, they can break out summary operating data for those franchisees or company-owned units that have been around for say 5 years, 10 years, etc. My sense is that the FTC will ultimately acknowledge the need for a mandatory Item 19. Given the difficulty from industry to industry to provide a workable template for the submission of information, the FTC will continue to allow franchisors to provide as much or as little information as they deem necessary. Those franchisors that do in fact provide real, in-depth information will clearly enjoy a competitive …

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Sona Med Spa Franchisee takes over as Franchisor

It was reported today that Byron Ashbridge and Joe Pitt, who operate five Sona MedSpa franchises in Charlotte, Greensboro and Raleigh North Carolina, have purchased the controlling interest in S0na MedSpa International, previously based in Franklin, TN. Since 2002, Ashbridge and Pitt have run some of the most successful locations in the company and will build upon their accomplishments in North Carolina to fortify, grow and improve the operation. This includes developing and implementing extensive staff training and marketing programs, and providing franchisees with proven systems and best practices to ensure optimal performance, customer satisfaction and profitability. The existing franchise locations will now be company-owned training centers and be the models for “best practices” in the medical spa industry. Franchisees will now have access to these company-owned centers in order to assist in the training and development of their respective staff, as well as determining marketing and operational tactics to use in their centers. It was reported at Let’s Talk Franchising on May 26th, 2007 that Sona MedSpa Was Guilty of Fraud, Investors Liable! In that case an arbitrator in Atlanta, Georgia awarded nearly $400,000 to a franchisee who was duped into buying a Sona MedSpa franchise on the basis of “faulty” information about Sona’s hair-removal services. The arbitrator not only held liable the Nashville-based franchisor, Sona MedSpas, and its founder, Dennis Jones, but also a group of prominent investors that acquired the franchisor, but then failed to correct the misleading information. The investors included Carousel Capital of Charlotte, N.C., its Chairman, Nelson Schwab II, Jim Amos, former President of Mail Boxes, Etc., and his daughter, Heather Rose. As a result of the investors’ failure to act on the information, the franchisee not only proceeded with his investment, but also repeated the faulty information to its own clients. Subesequently …

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Update to “What a Quiznos Franchisee Makes”

Download the Quiznos Profit Spreadsheet Based on the 115 comments, the most popular post on FranchisePundit.com has been What a Quizos Franchisee Makes, posted on April 10, 2005. The purported author of the financial projects also founded the web site QuiznosSucks.com (don’t bother going there, it now defunt and replaced with a domain aggregator’s advertising search engine). More of his experience is posted in this forum thread (pdf) on ToastedSubs.info. Here is the main snippet: QuiznosSucks 08-10-2005, 11:35 AM Yeah, Corporate is aware of Quiznossucks.com. Richard Sauls, the fellow who is responsible for the site, is himself a former Quiznos franchisee. Corporate actually sued to force him to kill the site and lost. My own feeling is that Quiznossucks makes them a bit nervous. It was developed on a shoestring and to little fanfare, but now averages in the neighborhood of 30k hits per day. I know that ever franchisor has its share of unhappy franchisees, but the situation with Quizno’s has reached a fever-pitch. From my research, the only comparable situation I have found is UPS Store franchisees. Ultimately, the Quizno’s business model doesn’t work. particulars vary from region to region, and depend heavily upon the franchisee’s rent and debt load, but break-even for a Quizno’s store is astronomical for this type of operation. The only thing keeping this house of cards aloft are second and third owners, who buy existing stores based on cash flow, at a fraction of the cost of a new store. I actually had a Q owner in my area approach me to see if i was interested in buying his store. The store was 3 years old, and he was running at break-even for the first year-and-a-half, with sales around 6700 per week. The Q opened a store near him (you have …

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Wendy’s franchisee bids for company

Potential buyout offer has support of family of founder Dave Thomas COLUMBUS, Ohio – It was reported in the Mansfield News Journal 6 that the owner of 134 Wendy’s franchises wants to make a bid for the nation’s No. 3 hamburger chain with two private-equity firms. David Karam, president of Cedar Enterprises Inc., said Wednesday that he and his partners have been invited by Wendy’s International Inc. to a second round of talks. He is backed by Kelso & Co. and Oak Hill Capital Partners. “I’ve been involved in the brand,” he said. “I see the great potential of it.” Cedar Enterprises, based outside Columbus, owns Wendy’sfranchises across the country that have a combined annual revenue of $200 million. Karam’s first-round proposal was enough to garner entry into a second round next month, where bids are expected. He would not disclose how much he is willing to pay for Wendy’s, but said the company’s current stock price is rich. Wendy’s shares rose 20 cents to $33.26 Wednesday. “Fundamentally, there’s great upside with the brand, but the reality is no one wants to overpay,” he said. Billionaire investor Nelson Peltz has said his company, Triarc Cos., is prepared to offer $37 to $41 per share for Wendy’s in a deal that would peg Wendy’s total value between $3.2 billion and $3.6 billion. Triarc owns the fast-food chain Arby’s and is also a major Wendy’s shareholder. Peltz said in July that he and his allies had increased their Wendy’s stake to 9.8 percent of all outstanding shares. Wendy’s formed a committee in April to determine how best to boost its stock price, including a possible sale. Wendy’s spokesman Denny Lynch and Peltz’s spokeswoman Carrie Bloom declined to comment Wednesday. In the past year, Wendy’s has spun off its Tim Hortons coffee-and-doughnut …

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Risqué hair salon franchise enters the ring in Boston

Knockouts, a full-service salon franchise that would make Floyd the barber blush, is busting into New England.Naomi Kooker reports in the Boston Business Journal that Neko Corp., headed by Bing Yeo of Lexington, bought the rights to franchise the salons that have been dubbed the “Hooters of haircutting,” where a scantily clad “specially chosen staff of female stylists” provides professional grooming services, including haircuts, coloring, waxing, manicures, pedicures and massages for men. Yeo purchased the rights in June to develop the franchises or sub-franchise the stores in Massachusetts, Maine, New Hampshire and Vermont. He plans to open his first store in Greater Boston by the end of this year or early 2008. He is looking in Allston-Brighton, among other areas, to open the first store, though no lease is signed. The franchise agreement gives him 15 years to roll out 20 stores; but Yeo, a business consultant, said his goal is to roll out that many in five years, focusing on the eastern Massachusetts and southern New Hampshire markets. Yeo did not disclose the cost of his agreement. Knockouts’ one-time franchise fee is $20,000 per location, with a 6 percent royalty fee thereafter. A 1 percent national advertising fee is also implemented after a store opens. To date, some Knockouts franchisees have reported brisk business and profit margins exceeding 20 percent. The concept comes at a time when other salon chains geared toward men are entering Greater Boston. For example, Floyd’s 99 Barbershop opened in Boston earlier this year. However, none require the stylists’ uniforms that Knockout does. “I wouldn’t deny the sex appeal,” said Yeo, who lists his wife, Winnie Yeo, as the director of the company on his Web site. “It’s certainly part of the branding.” Yeo confirmed that the stylists, all women, are professional and certified, …

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Franchise Industry Shakeout Coming? {Part 2}

My first post about the topic of there being too many franchise consultant/brokers in the industry now, has prompted a pretty good discussion on a blog I contribute to, BlueMauMau.org, a very popular blog that is targeted to current and future franchise owners. More……… There were over 60 back and forth comments about this topic as of Sunday evening {8-5.} I am quite passionate about this subject, so  are some others in the industry….check out this discussion. {Please come back here when you are done, to continue reading.} The biggest problem I have with the amount of new “consultants” coming into our industry, is how they are being sold the bill of goods. Jim Coen, a 25 year franchise industry veteran up in New England, and fellow blogger,  gives one example of a franchise that sells franchises, to those that want to sell franchises. {Confusing, huh?}  See Below: No Experience Necessary Huge Demand and growing demand for our service No Cold Calling Required Work with the best franchises Tremendous Income Potential, earning up to $25,000 for a single transaction Complete Training Start from your Home Work Part time Only $19,900 to get started $19,900 is quite the bargain, with no cold calling! Some franchises that sell franchises to those that want to sell franchises, have $30k-$50k Franchise Fees up front. To those folks that may be reading this, that are thinking about  becoming a “consultant”, what do you think “no cold calling” means? What this means, in a nutshell, is that these franchises that sell franchises to folks that want to sell franchises will be sending you somewhat qualified “leads.” Well kind of “leads.” More like what I have been calling them for the last 5 years, inquires. A “lead’ is someone who is fairly interested in learning more …

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Maximizing the financial benefits of your franchise

Choice of business entity (partnership, LLC, or S or C corporation) and minimizing your tax obligations can increase your net worth even with a stagnant franchise. If you own a franchise and do your own accounting and taxes, please read this article. Here is a sample: Paying the IRS—On Your Personal Income and Dividends What makes S corporation dividends so attractive? Not only is there no corporate income tax, but the S corporation can cut other taxes as well. By paying the owner and select employee/shareholders with dividends, in addition to salary, the amount of income subject to Social Security, Medicare, and self-employment tax (and employer matches) can be reduced. Paying revenue as dividends removes that income from the Social Security/Medicare tax “pot” (7.65 percent employee/7.65 percent employer). The recipients pay personal tax on the payouts, but at the dividend rate, rather than the ordinary income rate. Bigger Caveat: The Internal Revenue Service has been looking into S corporations and comparable business entities for possible abuses—including using S corporation dividends to avoid income tax. Under IRS rules, owners (and any other beneficiaries) of S corporation dividends must first receive a reasonable salary before revenue is paid as dividends. The IRS announced plans for a major audit of S corporations last summer, so it is an excellent idea to consult a tax professional and discuss this strategy at your annual corporate board of directors meeting. Dividends are a return on investment, not a substitute for a salary or a tax avoidance technique. Does a Change Make Sense for a Going Concern? Thinking of changing from a C corporation to an S corporation or LLC? Or maybe changing from an S corporation or LLC back to a C corporation? Or maybe you want to change between an LLC and an S …

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Maximizing the financial benefits of your franchise

Choice of business entity (partnership, LLC, or S or C corporation) and minimizing your tax obligations can increase your net worth even with a stagnant franchise. If you own a franchise and do your own accounting and taxes, please read this article.   Here is a sample: Paying the IRS—On Your Personal Income and Dividends What makes S corporation dividends so attractive? Not only is there no corporate income tax, but the S corporation can cut other taxes as well. By paying the owner and select employee/shareholders with dividends, in addition to salary, the amount of income subject to Social Security, Medicare, and self-employment tax (and employer matches) can be reduced. Paying revenue as dividends removes that income from the Social Security/Medicare tax “pot” (7.65 percent employee/7.65 percent employer). The recipients pay personal tax on the payouts, but at the dividend rate, rather than the ordinary income rate. Bigger Caveat: The Internal Revenue Service has been looking into S corporations and comparable business entities for possible abuses—including using S corporation dividends to avoid income tax. Under IRS rules, owners (and any other beneficiaries) of S corporation dividends must first receive a reasonable salary before revenue is paid as dividends. The IRS announced plans for a major audit of S corporations last summer, so it is an excellent idea to consult a tax professional and discuss this strategy at your annual corporate board of directors meeting. Dividends are a return on investment, not a substitute for a salary or a tax avoidance technique. Does a Change Make Sense for a Going Concern? Thinking of changing from a C corporation to an S corporation or LLC? Or maybe changing from an S corporation or LLC back to a C corporation? Or maybe you want to change between an LLC and an S …

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Pet Franchises

Pampered pets This year, Americans will spend an estimated $40.8 billion on pets — almost double what they spent just a decade earlier, according to the American Pet Products Manufacturers Association. With about 7.1 million U.S. pet-owning households, national brands such as Origins, Harley-Davidson and Old Navy have created pet-friendly lines of clothing, accessories and wellness products. Entrepreneurs are following suit with an interest in the rising status of the posh pet. At least a dozen pet-related businesses have opened in the Oklahoma City area within the past few years, including a spa and resort, a home-based pet portrait studio, bakeries, professional poop scoopers and several specialty dog boutiques. We’ve discussed pet franchises before on this blog. All things being equal (which they never are in real life), it’s easier to be grab market share when the customer base is expanding, and the customers are accustomed to spending for posh accessories and convenience.  Unless your products or services is noticeably unique, competition will rise and prices will drop. The poop pickup business is very good business and has been profitable for the aggressive entrepreneurs and franchisees. Pet Butler has been growing very fast and is establishing a professional brand and franchise system, Happy Tails Dog Spa enables its customers to watch their pets on a webcam all day long, and Bark Busters helps you spend more quality time with your dog by training it to behave.

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Behavior Around Disabled Employees

This should be obvious to franchisees, but do not act or allow employees to act, point out, or otherwise draw unnecessary attention to an employee’s disability. As the below Subway franchisee discovered, it cost him $166k in court awards plus (I’m guessing here) another $75,000 in legal fees. Subway Franchise to Pay $166,500 for Disability Bias, Jury Rules in EEOC Lawsuit The Dallas jury of five women and two men awarded former area supervisor Tammy Gitsham $66,500 for lost wages and emotional harm and an additional $100,000 in punitive damages in the EEOC’s suit under the Americans with Disabilities Act of 1990 (ADA) in U.S. District Court for the Northern District of Texas. The EEOC charged in the case that Subway Owner Robert Suarez and one of his managers subjected Gitsham to a disability-based hostile work environment, including teasing and name-calling, because she is hearing impaired and wears hearing aids. EEOC presented evidence that Gitsham was forced to resign her position after both the owner and human resources/training manager repeatedly mocked her privately and in front of other employees, creating a hostile workplace, with taunts such as: “Read My Lips” and “Can you hear me now?” and “You got your ears on?”

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Sign a Rama First Franchise to Win U.S. Presidential E Award for Exporting Success

Sign-A-Rama, the world’s largest retail sign franchise, has been awarded the United States Department of Commerce’s Presidential “E” Award. Sign-A-Rama is the first franchise company to ever win the award.Commerce Secretary Carlos M. Gutierrez joined President Bush at the White House to present Sign-A-Rama , along with ten other organizations, with the “E” Award for excellence in exporting. The company’s export sales increased 700% in three years, growing from $1.5 million in 2002 to $12 million in 2005. In attendance were president and founder Ray Titus and his wife Andrea. Also in attendance was Tony Foley. Foley is president of World Franchisors which has assisted Sign-A-Rama and countless other franchisors for many years with their global expansion goals. World Franchisors is comprised of an advanced team who helps other franchisors quickly and cost effectively sell master licenses and establish a strong presence outside the United States. Also assisting the franchise with their success in export sales is the U.S. Commercial Service. This government agency is the trade promotion unit of the International Trade Administration and works with companies to help get them started in exporting and increasing their sales to new global markets. The Fort Lauderdale, Florida office was instrumental in Sign-A-Rama ’s export success and subsequently their being honored with the “E” Award. The President’s “E” Award is the highest honor the federal government can give to an American exporting company. The award serves to recognize U.S. firms for their competitive achievements in world markets and their part in increasing U.S. exports abroad. This marks the 45th anniversary of the Presidential “E” Award created by President John F. Kennedy in 1961. “Winning this award was a great honor for our company coupled with the privilege of meeting President Bush in the Oval Office,” says Ray Titus, president of …

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Bruster’s Ice Cream franchise warms to idea of co-branding with Nathans Hot Dogs

After growing a successful franchise selling desserts, Bruster’s Real Ice Cream  is ready to serve up a full meal.Tim Schooley reports in the Pittsburgh Business Times, that the Bridgewater, PA, based ice cream chain recently began a strategy to co-brand its stores with The Nathan’s Famous Corp., the publicly traded New York-based hot dog chain known for its nationally televised Fourth of July hot dog-eating contests. So far, six of Bruster’s 260 locations have become two-in-one Bruster’s/Nathan’s stores, including the region’s first in Dormont, said Dave Guido, vice president of concept development for Bruster’s. Two more area locations are slated for conversions, said Guido, estimating that 15 to 20 Bruster’s could operate jointly with Nathan’s by the end of the year. While Bruster’s only began testing the co-branding strategy in February, and the Dormont location was the pilot store, Guido sees broad potential from early sales tallies, which he declined to disclose. “The results are going to tell the tale. But early on, we’re very, very happy with how it’s gone,” said Guido, adding the company is considering co-branding with other franchises, although he declined to name them. “If we continue to get favorable results, it will be an option for everyone who is an existing store.” Randy Watts, vice president of operations for Nathan’s, sees the co-branding franchising effort as a way for Nathan’s to reach new markets through Bruster’s territory, which extends throughout the eastern United States. “It seemed like a natural synergy for the two brands to use their real estate a little better,” Watts said. “We’re the No. 1-selling all-beef premium hot dog in the world. We definitely think they have a real top-quality ice cream brand.” Co-branding is nothing new for Nathan’s, which also owns Kenny Rogers Roasters. Nathan’s also operates joint locations with …

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Quiznos New Leadership

Quiznos CEO puts turnaround skills to work The former Burger King boss is applying his turnaround expertise to the troubled sandwich chain, whose dissatisfied franchise owners have complained about low profits, company operating requirements and the franchisee recruiting process. Since jumping into the fray in January, Brenneman has worked to reduce food costs by as much as 4 percent, improve communication with franchisees and test new products, like a Quiznos taco, to boost profits. … Last year, private equity firm J.P. Morgan Partners became an ownership partner, and Brenneman later became a partner through his company, Turnworks. Through the roller-coaster ownership ride, the chain expanded quickly, to at least 5,000 stores. Today it’s ranked third behind Subway and Arby’s by Technomic, an industry analyst firm.  Although Quiznos does not release much information, Technomic restaurant industry analyst Darren Tristano said Quiznos has average sales of about $425,000 a year per store while Subway has average sales of about $375,000. Quiznos’ success has come with growing pains. Lawsuits by franchise owners in Illinois, Michigan and Wisconsin allege the company draws in prospective owners, who pay $25,000 for a franchise, but doesn’t give them complete facts about restaurant locations and business operations. … Lawyer Justin Klein contends many franchisees sign contracts only to wait a year or more for the company to build a restaurant. The suits also accuse the company of requiring franchise owners to buy all supplies from Quiznos at higher prices than if they bought locally. The company denies the allegations and filed motions to dismiss the suits. Brenneman, meanwhile, has reached out to franchisees and targeted their food and other costs. If he can cut food costs by 3 percent and coupon discount offers by 4 percent, Brenneman believes he can add $25,000 to $30,000 in franchisees’ profits. …

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SuperCoups Franchisees Organize

The franchisees of SuperCoups have formed an association. In an effort to enhance communication and create a forum for franchisee representation and negotiation the franchisees have elected to form the SuperCoups Franchise Owners Association (SCFOA). For many years SuperCoups has had an Advisory Board, which is organized with the participation of the franchisor. The SuperCoups Advisory Board provides an opportunity for the franchisor to present information to franchisees and visa versa, but the franchisees wanted a more independent forum to enhance communication among franchisees and the franchisor. A former member of the SuperCoups Advisory Board, Jim McCann, who has been a franchisee (SuperCoups of Mercer County) of SuperCoups for 12 years, said “the advisory council fostered communications between the management team of SuperCoups and the franchisees, recently the parent company was undergoing an ownership change, the franchisees felt it was important to form an association to make sure there was a forum to communicate among ourselves and directly with the parent company while providing the Advisory Board with added support.” In November of 2006, Jim started looking into ways to organize the franchisees and came across the American Association of Franchisees and Dealers (AAFD). “The AAFD offered a step by step process that made the forming of the SCFOA much less intimidating, we all have businesses to operate and we can’t spend too much time organizing, the AAFD gave us a blueprint to form the association, inform the franchisor, and establish an infrastructure to operate efficiently,” stated McCann” The first and largest franchisee of SuperCoups, Ron Benedetti conducted a survey in which 43 out of 47of franchisees participated. Ron said, “When Jim first approached me about the idea to start an association, I felt the best place to start was with the franchisees, if they supported an association I …

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Talk to Franchisees Before You Join the Club!

Talking to existing franchisees is one of the most important things you can do to investigate a franchise opportunity. Franchisees know the business. They can help you decide if this opportunity is right for you. Being well informed at the start will improve your odds of success, of course, just as it does in any new job experience. The franchisees are the ones who can tell you the real deal; how well sales strategies hatched by the franchisor really work, what your day will be like, and when you might expect to break even, for example. You will want to speak with a number of franchisees, preferably some of whom are very successful and also some who are struggling. By reviewing the responses and comparing your own management style to those currently operating stores, you will have a better idea of where you might end up if you purchase this franchise. Before calling any franchisee you should have read the franchisor’s Uniform Franchise Offering Circular (UFOC), which will give you a wide range of information about the franchise. But getting in touch with franchisees and getting them to tell you what they really think isn’t easy. The UFOC contains a list of current and past franchisees. Here are some suggestions: Have a clear idea what you want to discuss. Create a list of questions. The most common questions to ask revolve around these subjects: Initial Investment, Training, Opening Support, Ongoing Support, Marketing Programs, Purchasing Requirements, Purchasing Power, Earnings, ROI. First ask yourself, “What do I want to know?” Here are some suggested questions to ask franchisees choose the questions that help you answer the question “What do I want to know?”  How has the franchisor responded to your calls for support about business operations or any other general questions …

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