Boston has become a hub of the franchising world in recent years. Both new and well-established franchisors are targeting growth in the area, although quick-service restaurants (QSRs) are not as popular here as they are in many other major U.S. cities.
This type of factor is important to keep in mind when evaluating franchise opportunities as a prospective franchisee. Just because a concept works in one city, this doesn’t necessarily mean that it will work in another. Choosing the wrong concept to bring to Boston can prove to be a costly mistake—and it is one that you can (and should) avoid with thorough market research and due diligence.
Here Are Some Costly Mistakes to Avoid as a Prospective Franchisee in Boston
When buying a franchise, there are several other mistakes you need to avoid as well. For example, here are seven all-too-common mistakes from Boston franchise lawyer Jeffrey M. Goldstein:
1. Giving Serious Consideration to Too Few Franchise Concepts
While it is important to do your market research and identify concepts that aren’t a good fit for Boston, it is equally important not to focus on a single franchise concept too soon. Instead, once you determine what type of business you want to own and operate, you should consider the offerings from multiple franchisors in the industry. Comparing franchisors’ Franchise Disclosure Documents (FDDs) can go a long way toward helping you make an informed buying decision, and giving serious consideration to multiple concepts will help you avoid making a decision based on emotional attachment.
2. Falling for a Franchisor’s Sales Pitch
When evaluating franchise concepts, you need to avoid falling for any one franchisor’s sales pitch. As a prospective franchisee, it is important to keep in mind that you are a customer—and franchisors want your business. They hire salespeople to attract strong candidates, and they will definitely try to sell you if you appear to have the financial wherewithal to open an outlet in Boston.
3. Signing the Franchise Agreement Before You Are Ready (and Without Negotiating)
As a prospective franchisee, there are several reasons not to sign the franchise agreement too soon. While you may want to show your commitment to the brand (and while the franchisor’s salespeople may tell you that you need to “lock in” your territory), rushing into a franchise agreement can be a very costly mistake. Two of the most important reasons not to sign the franchise agreement before you are ready are:
- The Clock Starts Ticking – Once you sign a franchise agreement, the clock starts ticking toward your deadline to open. If you aren’t prepared to get your franchise up and running by the opening deadline, your franchise venture could be over before it begins.
- You Need to Negotiate – Franchise agreements are all heavily one-sided. Franchisors know this, and good franchisors will be willing to negotiate. If you sign your franchise agreement without negotiating, you will increase your risks of owning a franchise substantially.
4. Failing to Thoroughly Review the FDD and Franchise Agreement
Before you commit to a franchise opportunity in Boston, you need to thoroughly review the FDD and franchise agreement. You should also hire a lawyer to analyze these documents for you. Yes, they are legal documents, and yes, they can be difficult to get through. But, buying a franchise is a major investment, and it is absolutely imperative that you move forward with eyes wide open.
5. Failing to Conduct Your Own Financial Analysis
When you inquire about a franchise opportunity, the franchisor may provide you with a pro forma, and it may refer you to the Estimated Initial Investment and Financial Performance Representation (FPR) in Items 5 and 19 of the FDD. But, while these can be helpful (though they are often incomplete or misleading), they are a starting point at best. Before you commit to buying a franchise in Boston, you need to conduct your own financial analysis based on your own assessment of your costs and your ability to generate revenue from the business. If you are not sure how to do this, you should hire a professional to help you.
6. Assuming Everything Will Work Out Because You are Buying a Franchise
By far, one of the most common mistakes prospective franchisees make is assuming that everything will work out because they are buying a franchise. With a recognizable brand, a proven business system and the franchisor’s support, what could possibly go wrong?
A lot can go wrong, and a lot does go wrong for many franchisees. When investing in a franchise, you need to make informed decisions based on reliable data, and, if you are not confident in your ability to build a successful business, you should not move forward.
7. Ignoring the Risks of Early Termination
Finally, while the end of your franchise may be the farthest thing from your mind, as a prospective franchisee you cannot ignore the risks of early termination. If your franchise is unsuccessful, or if your franchisor terminates your franchise agreement for any other reason, you could face consequences including:
- Loss of your investment with no way to recoup your losses
- Liability under your personal guarantee (if you gave one when taking out a loan for your franchise)
- Liability for liquidated damages (or “lost future royalties” under your franchise agreement)
- Liability for future rents and other future costs under your leases and other contracts
- Enforcement of your franchise agreement’s post-termination non-competition and non-solicitation covenants
While buying a franchise can be profitable, this profit potential comes with many inherent risks. Again, the key is to make smart decisions and to only move forward when you are confident that you are prepared to do so.
Schedule a Free Initial Consultation with Boston Franchise Lawyer Jeffrey M. Goldstein
Are you thinking about buying a franchise? If so, we encourage you to contact us for more information. To schedule a free initial consultation with Boston franchise lawyer Jeffrey M. Goldstein and learn more about our franchise business review programs, call 202-293-3947 or get in touch online today.
