Buying a franchise is an expensive proposition. From the initial franchise fee to the reserve capital you will need for your first six to twelve months of operations, as a prospective franchisee, every penny matters.
With this in mind, do you really need to speak with a franchise lawyer before you buy? If you have already made up your mind, what is the benefit of having someone review the Franchise Disclosure Document (FDD) and franchise agreement? Unfortunately, many prospective franchisees attempt to save money by foregoing a legal review, and their decision ends up costing them substantially in the years to come.
10 Reasons to Hire a Franchise Lawyer Before You Sign
There are numerous reasons why all prospective franchisees should seek legal representation. Here are 10 examples:
- You Need to Make Sure You are Making an Informed Decision. Have you read and understood the entire FDD? What about the franchise agreement? Have you conducted adequate due diligence?
- Your Franchisor May be Providing Incomplete Information. Franchisors have sales funnels, and their goal is to get you to sign on the dotted line. Are you sure you have the complete story about your franchise opportunity?
- There Are Hidden Risks to Buying a Franchise. Is the franchisor at risk for bankruptcy or litigation? Could it lose the exclusive right to use its trademark?
- You Need to Know Your Obligations. Can you buy from any source you choose, or are you limited to approved products and approved suppliers?
- Your Franchisor Probably Has Broad Rights to Terminate. What mistakes can jeopardize your franchise? If you make a mistake or miss a payment, will you have the opportunity to cure?
- State Franchise Laws May Protect You. If you live in a state with a franchise relationship law, are your statutory rights accurately reflected in your franchise agreement?
- You May Be able to Negotiate. Is your franchisor willing to negotiate any provisions of your franchise agreement? If so, what alternate terms should you propose?
- Many Franchise Agreement Provisions are Not as They Seem. How “protected” is your territory, really? What are the conditions on your “right” to transfer or renew?
- Past Experience May Be Indicative of Future Results. Have other prospective franchisees been successful in negotiating with the franchisor? How often do franchisees in the system find themselves facing disputes with the franchisor?
- Franchise Reviews are Far Less Expensive than Franchise Arbitration or Litigation. If you end up in arbitration or litigation because you overlooked an issue during the buying process, will you be able to afford the cost of fighting to protect your business?
If you are thinking about buying a franchise, franchise law firms offer a variety of fixed-fee franchise business review services for prospective franchisees. For more information, you can contact a firm online or call (202) 293-3947 for a free initial consultation.
