Do you wonder whether there is value in hiring a franchisee attorney to review your Franchise Disclosure Document (FDD) before you commit to buying a franchise? Every prospective franchise asks that question. The question is legitimate. The answer is a resounding "yes". A few hundred dollars invested today can literally save you and your family from personal bankruptcy.
When buying a franchise, you should beware of "freedom of contract". Freedom of contract is a bedrock concept of the legal system. It presumes that every person understands every word of every contract and that their "self-interest" will cause them to not sign unfair or ill-advised contracts.
Another day and two more prospective clients calling for help because they bought franchises. One in the senior health care industry; one in the men's hair care industry. Both suffered devastating losses. In under two years, one lost $600,000; the other "only" $100,000. In both cases, they have nothing left and I had to talk to them about consulting a bankruptcy attorney.
Every day people eager to own a business invest $500,000 to a million dollars in franchises where the FDD said the top of the range for "estimated initial investment" was under $250,000-and where the "initial franchise fee" is only about $35,000. When buying a franchise, the first question they should be asking is what are they getting for all that money?
If you are considering buying a franchise, you need to beware of empty promises from the franchisor. Over the last few years, franchise agreements have become extremely one-sided. Recently, many franchisors are making no enforceable promises to provide franchisees with any support or assistance after their business opens.
When buying a franchise, think before you convert your existing business to a franchise. If you have an existing business, you may discover opportunities to convert your business to a franchise--to get the benefits of a "well known brand", to gain "purchasing power", or to gain advertising and support. You may even be tempted because of the attractiveness of the package.
In buying a franchise, beware of the lies, damned lies and statistics--about 90% success rates, among other things. At some point in the process of buying a franchise, someone will probably tell you that 90% of all franchises succeed. That person is lying. Years ago, the Department of Commerce produced a "study" with that statistic and unscrupulous franchisors and franchise brokers have been relying on it ever since.
At least weekly we hear from a franchisee, after buying a franchise, that "I should never have bought it." That realization stings. It signals that the honeymoon has ended and the spell cast by the sales consultant has worn off. Frequently, it signals the impending economic death of the franchisee-and the ultimate "death by a thousand cuts" of the franchisor.
Almost every franchisee, when buying a franchise, is asked to sign a document containing false statements--in order to be "awarded" a franchise. No franchise or other business opportunity is worth signing something false to get it.
With jobs scarce for college students and new graduates, college students should beware of an increasingly active predator-the franchise sales person. They haunt job fairs and campuses with tantalizing "opportunities" to start your own business by buying a franchise; opportunities to be free of the lines for every job opening. What they are offering, unfortunately, is indentured servitude that can be hard to escape.