So, you’re thinking about buying a franchise in 2024. What do you need to know? Buying a franchise is a major investment with significant legal financial implications—so it is critical that you make an informed buying decision. Here are some key insights from franchise attorney Jeffrey M. Goldstein.
Due Diligence is More Important Than Ever
In 2024, due diligence will be more important than ever. It has always been important, but with new franchise concepts launching at a record pace, it is imperative that prospective franchisees take the time to gain a thorough and accurate understanding of the opportunities they are pursuing.
Even with well-established brands, due diligence is essential. From litigation and bankruptcy proceedings to re-branding campaigns and efforts to sell to new owners, there are numerous issues that can present risks for unsuspecting franchise candidates. When buying a franchise, it is important not to make any assumptions. Instead, you should to take the time to ensure that you are making a fully informed decision.
Comparing Franchise Opportunities is Also More Important Than Ever
With the volume of new franchise concepts on the market, comparing franchise opportunities is also going to be more important than ever in 2024. More franchisors means more competition, and this means that there are going to be new factors to consider when choosing between brands—if you know where to look.
Comparing franchise opportunities takes time, and, in some cases, it is easier said than done. However, an experienced franchise attorney can help, and reviewing competing franchisors’ offerings can be a core component of a comprehensive franchise business review. Before you set your sights on one particular brand, it is important to make sure that its competitors don’t have something better to offer.
The Landscape is Becoming More Competitive
The number of franchised outlets in the United States has been steadily on the rise. This trend is expected to continue in 2024, and this means that there will be more competition for the franchise opportunities that are available.
This means that once you make the decision to pursue a franchise opportunity, you need to put your best foot forward. You need to show that you are capable of operating a successful outlet and that you have the financing to do it. By working with a franchise attorney, you can position yourself for success—in addition to ensuring that your franchise agreement is as fair as possible.
But, Franchisors Still Want Your Business
While the landscape is becoming more competitive, it is also important to keep in mind that franchisors want your business. Franchisors want to sell franchises, and, as a result, they will also be putting their best foot forward. Once again, due diligence is key, and it is critical that you do not make your buying decision based solely on the information that you receive directly from a franchisor.
Just like other businesses, some franchisors use aggressive sales tactics. Some will also be more forthcoming than others. While a courtship may be a sign that an up-and-coming franchisor is eager to bring you into the brand because its executives believe in your ability to succeed, aggressive sales tactics can also be a red flag in some cases. If a franchisor seems desperate to sell franchises when there are plenty of candidates in the market, you should ask yourself, “Why is this the case?”
Prospective Franchisees Need to Carefully Review Their FDDs and Franchise Agreements
When you express interest in pursuing a franchise opportunity, you will receive a copy of the franchisor’s Franchise Disclosure Document (FDD) and franchise agreement. You need to carefully read both of these documents. It will take a few hours, and it will not be fun, but it is important that you do it.
The FDD and franchise agreement both contain numerous key pieces of information. We have created comprehensive guides to understanding these documents, and you can use our guides to help you identify the key Items and terms. As you come up with questions, you should write them down to discuss with your franchise attorney.
Prospective Franchisees Also Need to Invest in a Franchise Business Review
Once you get serious about pursuing a franchise opportunity, it is important to invest in a franchise business review. This is a comprehensive review of the opportunity conducted by an experienced franchise attorney. Your attorney will review the FDD and franchise agreement, and if you choose, your attorney will negotiate key provisions of the franchise agreement on your behalf as well.
While you will want to have a specific franchise opportunity in mind when you invest in a franchise business review, it is important not to be emotionally invested at this stage. The purpose of the review is to help you make an informed buying decision. While most franchisees don’t change their mind after their reviews, some do, and you need to be willing to walk away if you aren’t comfortable with the risks that a particular franchise opportunity entails.
There’s No Going Back Once You Sign
Finally, it is important to remember that there’s no going back once you sign. Franchise agreements are binding long-term contracts (usually for a minimum of two or three years), and there are financial consequences to both failing to open and closing your business prematurely.
As a franchisee, you are responsible for your own success. As a prospective franchisee, it is up to you to ensure that you are setting yourself up for success by making an informed buying decision. If you are thinking about buying a franchise in 2024, we encourage you to contact us for more information.
Discuss Your Franchise Opportunity with Franchise Attorney Jeffrey M. Goldstein
Franchise attorney Jeffrey M. Goldstein has more than 30 years of experience representing prospective and active franchisees. He can help you make an informed buying decision, and you can choose the fixed-fee franchise business review program that works for you. To get started with a free initial consultation, please call 202-293-3947 or contact us online today.
