Buying a franchise is a multi-step process that requires careful planning, foresight and informed decision-making. While a franchise can be a good investment, there are no guarantees, and starting out on the wrong foot can make it much more difficult to build a successful and sustainable business. In this article, New York franchise lawyer Jeffrey M. Goldstein provides an overview of the franchise buying process.
10 Steps to Take When Buying a Franchise in New York
Are you thinking about buying a franchise in New York? If so, here are 10 steps you should be prepared to take as you move forward:
1. Evaluate Your Financial Standing
One of the first steps you should take is to evaluate your financial standing. How will you finance your franchise? How much can you reasonably expect to borrow? How will you cover your personal expenses during your franchise’s pre-profitability phase? Before you commit to moving forward, you need to make sure that you are financially in a position to do so.
2. Evaluate Your Business Goals
Another key early step in the process is to evaluate your business goals. What do you want to get out of owning a franchise? Are you interested in running a particular type of business? Or is it simply business ownership that drives you? Is your goal to become a multi-unit franchisee or area developer? Do you want to buy a franchise that you can sell in the future? These are all important questions that will help you determine which types of franchise opportunities you should pursue.
3. Identify Franchise Opportunities that Interest You
Once you have clearly identified your goals, then the next step is to start identifying specific franchise opportunities that interest you. Some examples of the factors you may want to consider when choosing opportunities to investigate include:
- The specific industry (or industries) that interest you
- The nature of the business (i.e., brick-and-mortar retail or home-based)
- The estimated initial investment
- The franchisor’s history and its executives’ experience
- The size and geographic coverage of the franchise system
Again, these are just examples. There are lots of franchises out there. So, the more you can do to clearly delineate your priorities, the easier it will be to narrow down your list of viable options.
4. Do Some Preliminary Research Online
After identifying a handful of franchise opportunities that interest you, you should research each of these opportunities online. Is there any significant media coverage (positive or negative)? Do franchisees seem to be satisfied, or are there lots of complaints online? How are the customer reviews for existing outlets in your area? While not necessarily determinative, the answers to these types of questions can help you decide whether you want to schedule a Discovery Day.
5. Attend a Discovery Day
A Discovery Day is a day that you spend at a franchisor’s headquarters meeting the franchisor’s team and learning more about the franchise system. It is an opportunity to ask questions and get a feel for whether a particular franchise opportunity might be right for you. When you inquire about a franchise opportunity, you will typically be asked to fill out an application; then, after some preliminary discussions, you will typically be given the opportunity to schedule a Discovery Day if it seems like you could be a good fit. You should be prepared to schedule Discovery Days with multiple franchisors if you decide that you are not comfortable with your first choice.
6. Obtain the Franchise Disclosure Document (FDD) and Franchise Agreement
If you are still interested in a franchise opportunity after your Discovery Day, your next step will be to obtain a copy of the franchisor’s Franchise Disclosure Document (FDD) and franchise agreement. You will be asked to sign a receipt page, and this is completely fine. The receipt page contains important information about your legal rights, so you should read it carefully and be sure to keep it for your records.
7. Read the FDD and Franchise Agreement
Once you receive an FDD and franchise agreement, you need to read them—in full. This will take a few hours, but it will be time well spent. At this point, you will still be in the information-gathering phase. The FDD and franchise agreement both contain a wealth of information that will give you a much better understanding of the specific franchise opportunity you are considering.
8. Hire a New York Franchise Lawyer to Review the FDD and Negotiate the Franchise Agreement
In addition to reading the FDD and franchise agreement yourself, you should also have them reviewed by a New York franchise lawyer. An experienced franchise lawyer will be able to pick up on issues that you won’t know to look for on your own. Your lawyer will also be able to help you decide which provisions of the franchise agreement you need to negotiate, and, if desired, your lawyer can negotiate on your behalf.
9. Identify Your Lender, Lessor and Vendors
After choosing the franchise opportunity that you will pursue, it’s time to do some legwork outside of the franchise buying process itself. This includes things like choosing your lender (if you haven’t already), finding a location (unless your franchise will be home-based) and identifying your vendors (unless your franchisor has exclusive suppliers). These are all important steps to take before you sign the franchise agreement.
10. Make Sure You Can Meet the Opening Deadline Before You Sign
It is also important to make sure you can meet the opening deadline before you sign. Most franchise agreements stipulate a deadline to open, and if you don’t meet this deadline, your franchisor can terminate your franchise. As a result, it is critical that you are confident in your ability to open on time—so that you don’t lose your franchise before it opens for business.
Request a Free Consultation with New York Franchise Lawyer Jeffrey M. Goldstein
Are you thinking about opening a franchise in New York? If so, contact us to learn about our fixed-fee FDD and franchise agreement review programs. To request a free consultation with New York franchise lawyer Jeffrey M. Goldstein, call 202-293-3947 or send us a message online today.
