What do McDonald's, Singer Sewing Machine and Minnie Pearl have in common? They're all important names in the history of franchising.

        The concept of franchising — allowing other businesses to use a company's name and products — developed more than two centuries ago. In the 1840's, German brewers gave franchises to taverns allowing them to sell their beer. During the Civil War, Singer introduced franchising to the United States, by franchising the right to sell their sewing machines.

        If you're a first-time entrepreneur, franchising seems attractive. As a franchisee, you're getting an established brand name, the marketing muscle of the parent company, a proven business plan and training, yet you're still self-employed. In turn, the franchisor is able to expand the company rapidly by working with eager entrepreneurs who make the capital investment for the new locations and put in the sweat equity.

        But it's more complicated than that.

        Franchising companies have spent years building a name brand and improving their business methods. They, rightfully, want to protect the quality of their outlets and ensure consistent offerings and standards. Some of the steps they take to achieve those goals are fair; others severely limit your rights and increase your costs.

        “What other trillion-dollar industry do you know that is not regulated?” says Susan Kezios, president of the American Franchisee Association, an organization representing franchisees.

        Few laws protect franchisees. The Federal Trade Commission requires franchisors to disclose the terms of the franchising arrangement through a Uniform Franchise Offering Circular. But that only governs disclosure — not business practices. Only 12 states have laws dealing with franchises (the Minnie Pearl chicken chain prompted the first of those).

        Because federal and state laws are so limited, the protection you have is the contract you have with your franchisor. These are complicated documents. Be certain to get a franchise attorney — not just a general business attorney — to review and negotiate your contract. As Ms. Kezios advises, “In real estate, the three most important things are location, location, location. In franchising, the three most important things are the contract, the contract, the contract.”

        Here are a few things to watch for:

        Fees: In addition to the initial cost of a franchise, you will pay royalties, marketing fees and other fees.

        Supplies: Many franchisors require you to purchase supplies from them or their approved suppliers.

        Financing: Getting financing from the franchisor may seem attractive, but make certain you get competitive terms and rates.

        Finally, understand what you're getting. In many cases, when the term of the contract is through, you do not own anything — even the right to continue the agreement on the same or similar terms, or to go into the same kind of business on your own.

        As Ms. Kezios advises, “Think about it more as renting an apartment than as buying a home.”

        Rhonda Abrams is the author of The Successful Business Organizer.

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