Yes, Franchise Buyers, You Should Have an Attorney
Buying a franchise is a complicated investment, a little like buying stock, but much riskier. By contrast to buying a stock, your total franchise investment is merely an educated guess, not a fixed amount. And unlike a buyer of stock, you may be required to work in your franchised business, and so forego other income earning opportunities. You should have a review of any franchise offering you are considering performed by an experienced franchise lawyer before you ever sign any franchise agreement.
Having a franchise review performed is inexpensive.
An informal survey of my colleagues confirms that most of us perform franchise reviews for a flat fee of less than $2,000. Just your initial franchise investment is going to be at least tens of thousands of dollars, and you may be borrowing a portion of that investment while putting your retirement accounts and/or home equity at risk in the process as well. The prospective franchise buyer who balks at the price of a franchise review is being penny wise, but pound foolish.
You don’t know what you don’t know.
Unlike a franchise broker or the franchisor’s salesperson, the franchise attorney you hire has no vested interest in whether you buy the franchise you are considering. Your lawyer can tell you what can and does go wrong in franchise relationships and advise you about the risks you simply cannot be reasonably expected to identify without experience in the franchising field.
What are the concrete benefits of a franchise review?
A franchise review typically accomplishes at least one of the following:
- It identifies “red flags” and inconsistencies with what you have been told about the offering.
- It identifies open-ended commitments and areas of franchisor self-interest, which present the possibility of price gouging by your franchisor or its affiliates.
- It raises pertinent questions for your further investigation.
- It identifies terms you should consider clarifying, limiting and/or negotiating—despite what most franchisors say, they often will negotiate or limit the effect of certain terms if you insist.
- It creates a record of representations made to you about the franchise which are not contained in the Franchise Disclosure Document.
- Sometimes it results in your decision not to buy the franchise because you can see it is far less attractive than you thought it was.
Look before you leap; get a franchise review.
My practice life is filled with representing franchise buyers who have come to regret their investment decisions. The vast majority never had an experienced franchise lawyer advise them before they entered into their franchise agreements. The uncertainty, difficulty, risk and expense of trying to fix a terrible business decision after the fact are immense. If you are a potential franchise investor, you should treat having a franchise review with an experienced franchise attorney as an absolute necessity.