When buying a franchise, you are required to make a long-term investment decision based upon imperfect information. You cannot predict the future, and this means that you have no way of knowing whether you will ultimately succeed as a franchisee.
However, what you can do is take steps to ensure that you are making as informed a decision as possible. Here are seven steps that will help you make an informed buying decision:
1. Submit a Franchise Application
With most franchisors, the buying process starts when you submit a franchise application. While there is a good chance that your application will be approved, even this early stage in the process can tell you a lot about the franchisor. Did the application ask for relevant information? Did it appear to be a template, or was it custom-tailored to the franchise? How quickly and thoroughly did the franchisor respond to your questions and requests for additional information? Were you provided with a current copy of the Franchise Disclosure Document (FDD) and franchise agreement, and were you asked to sign a receipt?
2. Assess the Financial Viability of the Franchise Opportunity
The FDD and franchise agreement should provide information about many (but not all) of the initial and ongoing costs of franchise ownership. At this point, you should prepare a pro forma and consider whether you will need to apply for financing from the Small Business Administration (SBA), a private lender or another funding source.
3. Hire an Attorney to Review the FDD and Franchise Agreement
While you are assessing the franchise opportunity’s financial viability, you should hire a franchise lawyer to assess the FDD and franchise agreement. There are different levels of service available, and at the Goldstein Law Firm we offer four tiers of flat-fee franchise business reviews.
4. Conduct Your Due Diligence
Along with reviewing the FDD and franchise agreement, your lawyer should also provide you with advice regarding due diligence. While due diligence can be time consuming, it can also be critically important, and you need to go into your franchise with your eyes as wide open as possible.
5. Negotiate the Franchise Agreement
Most likely, your lawyer will recommend that you attempt to negotiate certain provisions of your franchise agreement. With the right approach, franchise agreement negotiations can be successful, and negotiating key provisions can protect you against substantial financial liability.
6. Address the Other Legal Aspects of Franchise Ownership
Should you form a corporation or limited liability company (LLC)? Do you need to negotiate a real estate lease? Should you buy liability insurance? These are important questions that your lawyer should be able to help you answer as well.
7. Make Sure You Will Be Prepared to Open on Time
Under most franchise agreements, once you sign you are required to open within a specified period of time. Delaying your opening could mean going into default, and this could mean losing your franchise without ever opening for business.
Inquire About Our Flat-Fee Franchise Business Review Services
If you would like more information about our flat-fee franchise business review services, we encourage you to get in touch. For a free initial consultation, please call 202-293-3947 or tell us how to contact you online today.