When buying a franchise, you need to make several important decisions that can have lasting implications for you and your business. Among them is the decision of whether or not to hire a franchise attorney. With all of the startup costs involved, hiring a lawyer to review the Franchise Disclosure Document (FDD) and franchise agreement may seem like one area where you can save some money (after all, aren’t you just going to end up signing the franchise agreement anyway?). But, while this is a choice some prospective franchisees make, their decision is usually based on a lack of understanding of the services an experienced franchise attorney can provide.
5 Risks of Signing a Franchise Agreement Without Legal Advice
Along with numerous other ways an experienced franchise attorney can help you make an informed buying decision, here are five key risks your attorney will be able to help you avoid:
1. Not Knowing What You are Signing
Buying a franchise is a long-term investment, and a franchise agreement is a long-term, legally-binding contract. Once you sign, you are bound to comply, and the odds are that you do not have a way out that does not involve incurring substantial financial liability to the franchisor. Before you sign, you need to know what you are signing, and you need to make sure you are comfortable with the legal and financial risks involved.
2. Not Negotiating One-Sided Provisions of the Franchise Agreement
Franchise agreements are almost universally heavily one-sided in favor of the franchisor. While you may be forced to accept most of these one-sided provisions, some of the risks involved may be significant enough to warrant contractual negotiations. An experienced franchise attorney will be able to help you understand these risks and negotiate appropriate provisions of your franchise agreement on your behalf.
3. Not Spotting Discrepancies Between the Franchisor’s Representations and Your Legal Obligations
Oftentimes, what a franchisor’s sales representatives say during the courting process will not align with the language in the franchisor’s legal documents. Before you rely on something you were told in person, you need to make sure that it is consistent with the legal terms.
4. Failing to Conduct Adequate Due Diligence
When assessing a franchise opportunity, making an informed decision goes far beyond understanding the terms of the FDD and franchise agreement. There are numerous steps involved in the franchise due diligence process, many of which require the assistance and insights of an experienced franchise lawyer.
5. Not Knowing Whether the Franchise Offering is Industry-Standard
Are the terms of your chosen franchise opportunity consistent with what other franchisors are offering? Are the initial franchise fee, royalty and marketing fund contributions industry-standard? Is the franchise agreement even more one-sided than usual? An experienced franchise attorney will be able to compare your chosen franchise to other franchisors’ offerings to provide additional insight into the value of your investment.
Learn More about Our Franchise Business Review Services
Our firm provides four tiers of flat-fee franchise business review services for prospective franchisees. To learn more in a free and confidential consultation, please call 202-293-3947 or inquire online today.
