Apr 26, 2019 - Blog, Franchise Articles by |

As a prospective franchisee, it is important to set reasonable expectations. On the one hand, you do not want to expect too much and set yourself up for disappointment (or failure). On the other, you do not want to expect so little that you fail to give adequate consideration to the legal risks (and opportunities) involved with buying a franchise.

1. Franchise Agreement Negotiations

Reasonable: Negotiating Overly One-Sided Provisions of the Franchise Agreement

Let’s start with negotiating your franchise agreement. Yes, you can negotiate; and, yes, most franchisors will consider reasonable requests to modify the overly one-sided provisions of their agreements. For example, if your agreement contains a non-compete clause, you may be able to negotiate a carveout that allows you to start or work for a company relying on the skills you acquired before you acquired your franchise.

Unreasonable: Negotiating System-Wide Standards and Terms

However, most franchisors will not consider negotiating the standards that they apply to franchisees on a system-wide basis – think mandatory suppliers and obligations to comply with the Operations Manual. Negotiating these types of provisions could make managing the franchise system untenable; and, as a result, requests for modification will usually be non-starters.

2. Franchise Due Diligence

Reasonable: Gathering Information from Current and Former Franchisees

When conducting your due diligence, you can expect to receive valuable information from current and former franchisees. The types of information they provide may be different (for example, former franchisees may be more willing to speak negatively of the franchisor), but everything you hear will help you make an informed buying decision.

Unreasonable: Obtaining Proprietary Information from the Franchisor

While the franchisor should be open with you about what you can expect as a franchisee, do not expect to receive any proprietary information (i.e. information contained in the Operations Manual) until you sign a franchise agreement.

3. Initial Investment

Reasonable: Obtaining an Accurate Estimate of the True Cost to Open a Franchise

By reviewing Item 7 of the Franchise Disclosure Document (FDD), speaking with the franchisor’s representatives and current and former franchisees, and conducting your own independent financial analysis, you should be able to obtain an accurate estimate of the true cost of opening a franchise.

Unreasonable: Coming in Below the Low-End Estimate

When you look at Item 7, you will see high-end and low-end estimates. In most cases, prospective franchisees need to be prepared to be on the high end of the range.

4. Ongoing Fees

Reasonable: Preventing Royalty and Ad Fund Increases at the Time of Renewal

When negotiating your franchise agreement, reducing your initial royalty is unlikely; however, you may be able to negotiate a provision that preserves your current royalty rate at the time of renewal.

Unreasonable: Expecting Leniency on Royalty and Ad Fund Payment Obligations

If you fall behind on royalty and ad fund payments, however, do not expect leniency from the franchisor. Collecting royalties is how franchisors make money; and, if your franchise is underperforming, it may be in your franchisor’s best interests to replace you.

5. Franchise Territory

Reasonable: Securing Territorial Protections for Your Franchise

Most (but not all) franchisors offer their franchisees at least some level of territorial protection. When reviewing your franchise agreement, it will be important to ensure that you have a clear understanding of your territorial rights.

Unreasonable: Expecting to Receive a Truly “Exclusive” Territory

However, franchisors rarely offer franchisees territories that are truly “exclusive.” At a minimum, most franchisors will reserve the right to sell in their franchisees’ territories through “alternate chains of distribution.”

Request a Flat-Fee Franchise Business Review

If you are thinking about buying a franchise, our firm offers four flat-fee franchise business review packages for prospective franchisees. To learn more in a free and confidential initial consultation with franchise lawyer Jeffrey M. Goldstein, please call 202-293-3947 or contact us online today.

Lawyer International

Lawyer International
Legal 100
2018

Lawyer International

Lawyer International
Legal 100
2019

ACQ5 LAW AWARDS 2019

US (New York)
Franchise Lawyer
of the Year
ACQ5 GLOBAL AWARDS 2019, JEFF GOLDSTEIN, GOLDSTEIN LAW FIRM, PLLC

ACQ5 LAW AWARDS 2019

US (New York)
Franchise Law Firm
of the Year
ACQ5 GLOBAL AWARDS 2019, GOLDSTEIN LAW FIRM, PLLC

Lawyers of Distinction logo

2019 Power Lawyers

Esteemed Lawyers of America Logo

Esteemed Law Firm Complex Litigation

Global Law Experts Logo

Recommended Firm in Franchise Litigation

Who's Who Attorney Logo

Top Attorney USA – Litigation

Avvo Franchise Lawyer Symbol

Superior Attorney in Franchising

Avvo Franchise Lawyer Symbol

Superior Attorney in Antitrust

Finance Monthly Global Award Winner Logo

Franchise Law Firm of the Year

Lead Counsel logo

Chosen Law Firm for Commercial Litigation

BBB of Washington DC

A+ Rated

Washington DC Chamber of Commerce

Verified Member

Lawyers of Distinction logo

Franchise Law Firm of the Year

ISSUU

Best Law Firm for Franchise Disputes in 2017

Law Awards Finanace Monthly

Franchise Law Firm of the Year - 2017

Top Franchise Litigator for Franchisees and Dealers

Top Franchise Litigator for Franchisees and Dealers

2017 Finance Monthly Award

2017 Finance Monthly Award

ACQ5 LAW AWARDS 2018

Franchise Law Firm
of the Year
ACQ5 LAW AWARDS 2018

ACQ5 LAW AWARDS 2019

Franchise Law Firm
of the Year
ACQ5 LAW AWARDS 2019

Franchise Law Firm of the Year

Franchise Law Firm of the Year

Franchise Law Firm of the Year
Global Awards 2017

Global Law Experts

Franchise Law Firm
of the Year
in New York – 2019

Finance Monthly Law Awards - 2018

Finance Monthly Law Awards - 2018

Franchise Law Firm of the Year

Franchise Law Firm
of the Year
Global Awards 2018

Contact Us

Goldstein Law Firm, PLLC

1629 K St. NW, Suite 300,
Washington, DC 20006

Phone: 202-293-3947
Fax: 202-315-2514

Free Consultation

Free Consultation