YES, YOU DO NEED TO GET YOUR FDD REVIEWED WHEN BUYING A FRANCHISE
June 22, 2018
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.
Like many law firms, the Bundy Law Firm can offer most people considering investing in a franchise a fixed fee for reviewing the FDD and related documents and a personalized consultation regarding what we find. Although the amount of the fee may vary based on the nature of the franchise you are considering, it is a pittance compared to the amounts you will be spending to enter a risky business.
The cold hard reality is that less than 15% of franchised businesses remain in business for five years. That translates to an 85% failure rate-if you include those who get lucky enough to sell to someone else before they run out of money. Having a clear understanding of the risks and benefits of a particular franchise offering can improve your chances of being among the survivors.
Here are some of the types of things that many, if not most, prospective franchisees tend to not fully understand:
The nature and effect of signing a franchise agreement personally;
How to avoid signing personally;
What a personal guaranty means and who it affects;
The nature and effect of signing a “standard” “franchisee questionnaire”;
The total amount of liability a franchisee faces (Item 7 is merely the tip of the iceberg);
The nature of lease liability;
How equipment leases work;
How reliable Financial Performance Information (Item 19) is;
How to understand the franchisor’s financial statements and how they affect franchisees;
How to do meaningful due diligence and
The list goes on.
By addressing these and many other issues with an experienced franchisee lawyer before you sign a contract or pay any money, you can make your decision with your eyes wide open and fully informed. Your failure to do it, in many cases, will guaranty financial disaster for you and your family.
Sadly, of the franchisees who call after they invested and after they learned that the chances of success had been completely misrepresented and the level of support was not even close to what they expected, over two-thirds do not have enough money left to hire us to help them. We often refer them to bankruptcy attorneys. You can avoid being in that group if you retain an experienced franchisee lawyer first.