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Buying A Franchise? Do These Things First

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Franchise agreements are not fair contracts.  Once training is done and the business opens, franchise agreements shift the entire burden of the franchise business to the franchisee.  Taking the right steps before signing that franchise agreement is critical, not just for success but for your financial survival.

 

 

Critical Steps to Buying a Franchise

  1. Investigate the profitability of the business model.   How much revenue must be generated to support franchise fees (royalties, etc.) and meet your financial needs (we are not even to financial goals yet)?
  2. If the business model checks out, then how about the franchisor?  Experienced? In what ways? And for how long?  Do they understand the business they are franchising? Do they understand the business of being a franchisor?   
  3. Get the Franchise Disclosure Document (FDD).  Read it!   Read the contracts (e.g. franchise agreement, etc.) content line for line!  Think you might be willing to sign?  Hire an experienced franchise attorney to review the documents.  Be willing to pay real money for a quality in-depth review.
  4. Consult a CPA experienced with small businesses, hopefully, one who has worked with your industry;  
  5. Verify your financial ability to pursue the business and prepare 1, 2 and 5-year plans   
  6. Take your attorney’s advice and recommendations to heart.   Then talk to the franchisor again.
  7. Don’t just sign, negotiate! It can be done.   
  8. Be prepared to walk away, if the final terms are not acceptable.

What’s the worst that can happen if you skip these steps?:

  1. You make no money and end up with a very low-paying job and long hours; and/or
  2. The Franchise business fails and loses money; and/or
  3. The Franchise business fails and you lose personal assets because of personal guaranty; and/or
  4. Franchisor sues for unpaid royalties and other fees; and/or
  5. Franchisor sues for lost profits (royalties and other fees for balance of term); and/or
  6. You end up paying a litigator to defend and counterclaim and /or…
  7. File bankruptcy.

Sound scary?  Then please do your job.  “Trust me” is not a part of the equation. It’s a lifetime investment and starts with hard work and research.

Contact Kat Tidd at Tidd Law PC for more information.

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