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National Restaurant Association - Benefits of franchises detailed at NRA Show

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Benefits of franchises detailed at NRA Show

Two legal experts mapped out the advantages and challenges of franchising for both the franchisor and the franchisee in an education session on Saturday, the opening day of the 2012 National Restaurant Association Restaurant, Hotel-Motel Show at McCormick Place in Chicago.

"The success of the franchise is directly proportional to the quality of training from the franchisor," said franchise attorney Tom MacIntosh. He cautioned both sides not to underestimate how much time initial training should take.

Franchising works because it helps franchisees achieve the American dream of business ownership and being one's own boss, he said. Additionally, the franchisee benefits from the franchisor's substantive and timely business assistance, both before and after the franchised restaurant opens.

Potential franchisees need to learn exactly what their initial franchisee fee, which can vary from $5,000 to $100,000, covers, MacIntosh said. After the restaurant opens, the franchisee benefits from national and regional advertising programs, volume discount purchasing programs, continuing supervision, protection of the trademark, franchisor research and development, and new products and services.

Financing has been a hot button challenge during the economic downturn that began in 2008, said co-speaker Ryan Palmer, shareholder in MacIntosh's firm of Monroe Moxness Berg PA. Lenders have been requiring a lot more equity from franchisees than in the past, and all financing may not come from one source.

Other challenges for franchisors include determining the profile of potential franchisees and attracting well-heeled area developers for faster growth, Palmer said. Before opening more stores, a franchisee should be successful with his or her first two.

"One bad franchisee can damage the good will of the brand," Palmer said.

MacIntosh outlined federal and state legal considerations involved in becoming a franchisor. "There is a patchwork quilt of laws that differ by state," he said, which can be frustrating for multistate companies.

A big benefit to being a franchisor is that "you're off the hook for running the store," MacIntosh said. "When you have an owner with skin in the game, he won't walk away."

More than 50,000 attendees are expected to attend the NRA Show, which runs through Tuesday.

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