Whether you are an experienced franchise owner or you are thinking about leaving your full-time job to enter the world of franchising, buying a franchise in 2019 presents some unique legal and practical considerations. Before you sign a franchise agreement, here are five important factors to keep in mind:
Factors to Consider Before Buying a Franchise
1. Franchise Openings, Closings and Projections
Franchisors are required to update their Franchise Disclosure Documents (FDDs) annually to reflect new openings and closings and to provide updated projections for the coming year. How old are the data in the FDD you received? While historical figures can still be useful, more-recent trends will give you a better idea of the current state of the franchise system.
2. Industry Factors
Speaking of trends, while some franchise concepts have staying power, others seek to capitalize on trends in consumer behavior. The hottest franchise in 2018 may not have much viability in 2019, and the concepts that are popular now may not be popular in 2020.
3. Online Competition
Consumers are increasingly turning to the Internet for retail purchases, and new delivery services are making it faster and easier to get everything from food to clothing (that you can try on and send back) at home. Additionally, as we recently discussed, Amazon is offering a $15 per hour entry-level wage, and this may make it harder for franchisees to attract quality employees as well.
4. Franchise Agreement Terms
From arbitration to indemnification, franchisors are constantly finding new ways to maximize their own protections under the terms of their franchise agreements. Of course, these protections come at the expense of their franchisees. When negotiating a franchise agreement, it is critical to assess the immediate and potential long-term implications of all of the material legal terms, and to make sound and rational decisions with your personal best interests in mind.
5. Initial Term and Renewal
If your franchise is a success, you will likely want the right to keep your business for as long as possible. On the other hand, if market factors do not swing in your favor, you will need to have a way out. Negotiating the initial term and renewal conditions in your franchise agreement can provide adequate protection and flexibility – provided that (i) your franchisor is willing to listen to you, and (ii) you are able to negotiate effectively.
This list is not exclusive. Buying a franchise is a complex investment, and every franchise opportunity presents its own legal risks. For legal advice tailored to your chosen franchise attorney, we encourage you to consider one of our flat-fee franchise business review packages.
Inquire with the Goldstein Law Firm
Goldstein Law Firm is a national franchise law firm that exclusively represents franchisees and dealers. If you are thinking about buying a franchise in 2019 and would like more information about the legal risks involved, we encourage you to call 202-293-3947 or contact us online for a confidential initial consultation.
