UNDERSTANDING THE IMPORTANCE OF A FRANCHISE BUSINESS REVIEW
July 21, 2022
If you’ve just attended a franchising convention or a sales presentation, read an inspiring novel, or have a dream in front of you, it’s like you want to hop on the bandwagon and enter a franchise opportunity. Visions of instant profits float before your eyes, and you’re ready to pull out your checkbook, pay the franchise fee, and sail into a golden future.
Before moving forward, it’s important to think through all the details. The franchisor is required to provide with you a Franchise Disclosure Document (FDD), which theoretically will answer any questions you have, but it could turn out to be nothing more than a glossed-over marketing pitch.
Before taking the plunge into a franchise agreement, you need the assistance of an experienced attorney who can not only review the FDD with you but also do other research – what is known as due diligence – to make sure your investment is all on the up and up, as the saying goes.
If you’re considering becoming a franchisee and have your eye on a particular opportunity, contact the attorneys at Bundy Law Firm PLLC. They have decades of experience in franchise law and helping entrepreneurs avoid any traps or pitfalls in entering the field. Located in Seattle, Washington, Attorneys Bundy and Fichter serve clients nationwide, including Oregon, Texas, and Florida. Contact them before you take the plunge. Your initial consultation is free.
What Is a Legal Review?
The documents you will need to review and sign to enter into a franchise agreement are legally binding on both you and the franchisor. The Franchise Disclosure Document (FDD) is required by the Federal Trade Commission – the federal agency regulating franchisors. The FDD contains 23 separate sections that contain a variety of details about the opportunity.
Just reading that document can take some time, and depending on how open and honest the franchisor is, it may contain some clues to any dangers that lie ahead, including franchising fees, marketing fees, transfer fees, and the like. Items 5 and 6 of the FDD are meant to discuss initial and ongoing fees.
Once you, the prospective franchisee, finish reading the FDD and you express a desire to proceed with the transaction, then the real legal business takes place. You will be presented with what is known as a Franchise Agreement, which is a legally binding contract. The Franchise Agreement can be long and tedious to read, full of all kinds of legalese and clauses that are hard to understand.
Not only should you have the FDD reviewed by an experienced franchise attorney, but most certainly, you must get the Franchise Agreement vetted to the very last word and phrase. There may even be conflicts between the two documents, and the Franchise Agreement may contain onerous restrictions or requirements that could make operating – and profiting from – the franchise more difficult.
Remember: Once you and the franchisor sign the agreement, the deal is cast in legal stone.
What Should You Get Out of a Legal Review of a Franchise Offering?
An attorney review, even if just of the FDD initially, should help you immensely in assessing whether the opportunity is right for you. Not every franchise fits the needs and native talents of every prospective franchisee. Some provide training and ongoing support, while others simply transfer their logo or brand name to you to use as a franchisee, and that’s it.
Actually, even before examining franchising opportunities, you should confer with the attorneys at the Bundy Law Firm PLLC so they can give you a solid overview of the franchising business in general. Then, once you’ve gotten to the stage of reviewing an FDD and/or a Franchise Agreement, an attorney can read the documents and advise you of what’s in store if you become a franchisee, in terms of both your risks and opportunities.
The review will help you understand the fees and your rights and responsibilities in operating the franchise. You may, for instance, think you can sell your franchise and assign it to someone else if you decide the business is not for you, but the contract may make that difficult or basically impossible. You need to know the details.
Reasons You Need a Legal Review Before Buying a Franchise
The FDD, as envisioned by the FTD, is just what its name implies – a disclosure document. But not all FDDs are created equal. Some may use more sales-like wording and try to paper over any past difficulties or known operating challenges.
An attorney experienced in franchising can review the FDD to point out areas that are being less than forthright. You and your attorney can then do further research into that particular franchise’s history.
Likewise, a Franchise Agreement is going to need a legal review. This document can be long, full of legalese and clauses that can trigger consequences for you, the franchisee, that could become detrimental to your survival as a franchisee.
You need to know all the risks involved in entering into a Franchise Agreement before you sign on that dotted line. You need to know that your interests will be protected as well as the interests of the franchisor. It can’t be a one-sided document or one that tilts heavily in favor of the franchisor.
Not all attorneys understand franchise law, but the ones at the Bundy Law Firm PLLC do through decades of experience. After conducting a review of the FDD and your Franchise Agreement, they can help you negotiate terms that are better suited for you and your interests. If you try to go it alone, you will be at a disadvantage against the franchisor and their legal team.
Trusted and Experienced Franchise Attorneys
Indeed, a franchise can present a golden opportunity for you to begin a business venture that already has a solid reputation, name, and brand value, and also an established and workable operating system in place, but it can also be a risky proposition. There are many aspects to operating a successful franchise, including location, demographics, and your own talent mix.
Don’t just rush into the first opportunity that appeals to you, but be sure to have a complete legal review conducted by experienced franchise attorneys. Contact the attorneys at the Bundy Law Firm PLLC wherever you are in the U.S. They have the experience, knowledge, and resources to help you find and successfully enter into a franchising opportunity that is best for you.