If you are like most prospective franchisees, you are on a budget. Buying a franchise is expensive, and you need to make sure you make every dollar count. So, is it really worth it to pay for a franchise business review? Or, is it enough to make sure you have a reasonably clear understanding of the terms of the franchisor’s Franchise Disclosure Document (FDD) and franchise agreement?
While many prospective franchisees have questions about the cost of hiring a lawyer to perform a franchise business review, the truth is that it can cost more – and potentially much more – not to get one. Here’s why:
1. There are Lots of Reasons Not to Buy a Franchise
While a franchise lawyer will rarely steer you away from a particular franchise opportunity, there are lots of reasons why you might ultimately decide for yourself that a particular opportunity isn’t right for you. What if the franchisor has a history of litigating with its franchisees? What if the terms of its franchise agreement are particularly unfair in comparison to those of its competitors? These are important facts you would want to know—and they are all facts that an experienced franchise lawyer can help you uncover.
2. What Isn’t In the FDD and Franchise Agreement Can Be Just as Important as What Is
While all FDDs must include certain disclosures broken down into 23 Items, not all franchisors disclose the same types of information—and not all franchisors include everything that is required. Likewise, while all franchise agreements share certain similarities, no two are exactly alike.
Thus, while it is important to carefully review the FDD and franchise agreement, it is also important to be able to identify any information or terms that are missing. If the FDD is missing information you need to know, or if the franchise agreement excludes protections to which you are entitled under your state’s franchise law, you could end up putting your investment at risk unnecessarily.
3. It May Be Possible to Negotiate Protections Into Your Franchise Agreement
If the standard franchise agreement is missing important terms or is unreasonably one-sided in favor of the franchisor, it may be possible to negotiate some key protections into your agreement. After reviewing the franchise agreement, your lawyer can recommend any necessary modifications, and your lawyer can also negotiate with the franchisor on your behalf.
4. A Significant Percentage of New Franchisees Fail
While you will find a variety of different statistics online, it is fair to say that a significant percentage of new franchisees fail. There are several factors that can lead to failure, from a poor franchise system to the franchisee’s failure to devote adequate time and attention to the franchised business.
Of course, when buying a franchise, you do not expect to fail. But, it is important to prepare for the possibility, as losing your franchise can mean more than just losing your initial investment. If you aren’t careful, you could face liability for “lost future royalties” as well, and you may be subject to post-termination competitive restrictions that prevent you from trying to start another business.
Inquire about Our Fixed-Fee Franchise Business Reviews
If you are thinking about buying a franchise, we strongly encourage you to inquire about our fixed-fee franchise business review programs. To discuss your options with national franchise attorney Jeffrey M. Goldstein, call 202-293-3947 or tell us how we can reach you online now.