Buying a Franchise? Here’s What You Need to Know

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Put yourself in the best financial position possible, so you’re ready to hit the ground running.

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By Harold Kestenbaum
 
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With the clock turning over to a New Year, it’s a time when many people reflect on their lives and make resolutions for the future. In fact, statistics show that the pull of New Year’s resolutions is so strong that it creates a  prime time for people to start looking at buying a franchise.
 
While this season has been a hotbed of franchise recruitment, rarely do companies see sales during November and December. Not surprisingly, this is due in large part because people’s wallets are already taxed by the costs of gift giving and holiday entertaining.
 
But for interested franchisee prospects like yourself, the period offers a golden opportunity to gather all the information you need about franchising, because there’s plenty of it to go around.
 
With a new president moving into the White House in January, many questions still abound about potential policy changes and how they could affect franchisee businesses under a Donald Trump administration. While no one in the world of franchising has a crystal ball, here are a few things to keep in mind.
Overtime pay
In May 2016, the federal government ruled to increase the threshold for salaried employees working 40 hours per week to receive overtime pay. That rule, however, was blocked by a Texas federal judge just days before it was scheduled to take effect in Dec. 1.
 
Despite the preliminary injunction halting the rule, there is still an appeals process that could result in the law taking effect. Franchisees may still end up being required to pay non-exempt, salaried employees overtime wages if they put in more than 40 hours per week.
 
This could greatly affect your business plan, especially if you are considering joining any one of the many food industry concepts available. This new realization may mean it’s time to recalibrate your estimates of how much capital you’ll need to get started.
 
This news is not all doom and gloom, though. What this also means is that you start your business with a fresh perspective; all you know is the new overtime regulations. It’s harder to make a systematic change to something that’s been in place for 12 years (the last overtime threshold increase) than to start something brand new at the beginning.
FDA changing your labels
The food industry is being hit by new rules in 2017 that could have a significant impact on how these businesses operate, this time from the U.S. Food and Drug Administration.
 
In April 2016, the FDA announced that it would require restaurant chains — many of which are franchised — and similar retail food establishments to print caloric information on all of their menus. This announcement came after FDA-conducted research showed that most Americans eat and drink about one-third of their calories away from home, and the FDA said “making calorie information available will help consumers make informed choices for themselves and their families.”
 
While the new menu labeling requirement only applies to restaurant chains with 20 or more locations, there is a good chance the food franchise you have selected falls right into the heart of that category.
With this new legal requirement and the knowledge that Americans are looking for healthier alternatives, restaurant owners would be wise to carefully consider their menu offerings and see what could stand to be revamped.
Economic implications
It is safe to say that new regulations can be difficult to manage, but they are a fact of life in the franchise industry. If you’re truly dedicated to your resolution to start your own business in 2017, change is something you must get used to.
 
This year — during which a new president will take control of the government — will likely see many economic ebbs and flows.
 
According to historical evidence and modern market research data, the U.S. economy typically dips following an election year, especially when the newly elected president is not an incumbent. While it’s impossible to predict exactly how the 2016 election will affect financial markets, experience suggests there will be frequent ups and downs after the new president takes the reins.
 
This election cycle has been particularly tumultuous, leaving many unanswered questions about how the market will respond over the long term. These uncertainties should be met with caution, but shouldn’t discourage hopeful potential business owners from fulfilling their entrepreneurial dreams.
 
It’s imperative that you put yourself in the best financial position possible during the first part of 2017, so you’re ready to hit the ground running. This may include securing all your financial needs, establishing an employee hiring pool, and finalizing a budget. Try to answer any pending questions as soon as possible, and you’ll be set for success in 2017. 
 
Harold L. Kestenbaum is an attorney specializing in franchise law, engaged exclusively in the practice of franchise distribution and licensing law since 1977. He is the owner of HLK, P.C. and has served on numerous boards and committees over the past two decades.

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