Lots of law firms—including ours—publish articles discussing how to buy a franchise. But, few legal commentators, if any, discuss how not to move forward with a franchise opportunity.
When buying a franchise, there are several mistakes you need to avoid. Making any one of these mistakes can make finding success much more difficult, and some of these mistakes can jeopardize your franchise opportunity from the beginning. So, in addition to knowing what to do, you also need to know what not to do so that you can make an informed buying decision.
10 Mistakes to Avoid When Buying a Franchise
What kinds of mistakes are we talking about? Here are 10 ways not to buy a franchise:
1. Go With Your Favorite Franchised Brand
Don’t shop around. Instead, go with your favorite franchised brand. You’ve always wanted to own one, and since you like it so much, other people must like it too. Ignore the fact that the prime locations in your area are already taken. You’ll find a way to make it work—right?
2. Rely on the Information the Franchisor Gives You
Instead of doing your due diligence and gathering information from as many sources as possible, just read the sales literature the franchisor provides. The franchisor wouldn’t leave out key details you need to make an informed decision—would it? You want to start out on the right foot, so show that you trust the franchisor unconditionally by foregoing your due diligence.
3. Don’t Read the Franchise Disclosure Document (FDD)
The Franchise Disclosure Document (FDD) is long, and it looks complicated. You’ve already picked out a franchise, so what’s the point of wasting your time pouring over a document that only exists because the U.S. Federal Trade Commission (FTC) requires it? You got the gist from the franchisor’s sales materials, and you’ve already made up your mind to move forward, so there is no sense in looking behind the curtain and finding out something you might not want to know.
4. Don’t Read the Franchise Agreement
If the FDD is complicated, then the franchise agreement might as well be written in Greek. You are buying a franchise—why do you need to know about things like indemnification, mandatory arbitration and damages caps? Plus, what are the odds that you and your franchisor are going to end up in a dispute where the franchise agreement determines your legal rights (or lack thereof)? Buying a franchise is risky already, so agreeing to a few unfavorable legal terms won’t hurt.
5. Believe the Franchisor’s Sales Rep Who Says the Franchise Agreement is Non-Negotiable
Besides, the franchisor’s sales representative already told you that the franchise agreement is non-negotiable. If you can’t negotiate, then what’s the point of figuring out what terms you would want to negotiate in an ideal scenario? You are ready to get started, so grab a pen, close your eyes, and write your name on the dotted line.
6. Ignore Red Flags
Sure, the franchise system is shrinking as franchisees close up shop. Sure, the franchisor is in bankruptcy and has pending lawsuits against several franchisees. So what? None of these franchisees are you. You are different, and your experience will be what you make it. What happened in the past is water under the bridge, and you are ready to forge ahead, carrying the franchisor on your back if necessary.
7. Only Talk to the Franchisor’s Recommended Franchisees
Even though you want to show the franchisor good faith, you also want to do a little bit of digging before you buy an outlet. Why not ask the franchisor for recommendations of some franchisees who are willing to share their experience? There is no way that the franchisor would cherry-pick its top performers. Surely you will get a balanced perspective from those who have prospered and those who have faced some struggles (most likely of their own making) along the way.
8. Don’t Plan Ahead
When buying a franchise, the last thing you want to do is plan ahead. Why put in the effort if you don’t have a franchise agreement locked down? Sign a franchise agreement, get into the system, then figure out what you need to do so you can meet the franchisor’s opening deadline. How long can it take to select a site, get it approved, find vendors who can ship your mandatory supplies, find contractors who can build out your space to the franchisor’s specifications, set up your point-of-sale systems, and get everything online so that you can open without a hitch?
9. Assume Your Franchise Will Be Profitable
The franchise industry is booming. New franchisors enter the market constantly, and people buy franchises every day. This must mean that your franchise will be profitable. Don’t worry about the fact that your location is unique, that your background isn’t in franchise ownership, or that you will need to work tirelessly to keep the lights on. Sooner or later, everything will come together. That’s just how it works, isn’t it?
10. Go Through the Process on Your Own
Finally, since you have already made up your mind and you don’t need to review the FDD or franchise agreement, there is no sense in seeking help from professionals. You can save some money and go through the process on your own. Even though the franchisor has dozens (if not hundreds) of other franchisees, it will devote 100 percent of its attention to you as you get started, and you can rest assured that everything will work out in the end.
Request a Free and Confidential Consultation with Franchise Lawyer Jeffrey M. Goldstein
Are you thinking about buying a franchise? If so, we encourage you to get in touch. We provide fixed-fee franchise business reviews for prospective franchisees nationwide. To learn the right way to buy a franchise from 30-year franchise lawyer Jeffrey M. Goldstein, please call 202-293-3947 or request a free consultation online today.