So, you’re thinking of buying a franchise, eh? Franchise agreement lawyer, Aaron Kelly, explains the basics below.
- Hospitality – restaurants, fast food, bars, frozen yogurt, or ice cream, hotels, motels
- Retail – electronics, sporting goods, shoes, clothes
- Personal Services – fitness clubs, beauty, hair, tanning, and nail salons
- Property Services – plumbing, heating, air-conditioning, carpet cleaning
- Automotive – oil change, car wash, car dealerships, gas station, auto repair
- Business Services – tax preparation, accountants, office supply, printers
The Key To A Successful Franchise: A Strong Contract Agreement Reviewed By An Experienced Franchise Agreement Lawyer
Each franchise category has its pros and cons. Some businesses allow for ownership flexibility, while other opportunities are restrictive. Either way, the key to making sure you have the best chance of franchise success lies in the details of the agreement.
A franchise agreement defines the terms and conditions that govern franchise ownership according to the franchisor. Before you sign a franchise agreement, make sure you read and understand every word. It’s advisable to consult with a franchise agreement lawyer before putting your John Hancock on the dotted line.
Basic questions to ask a potential franchisor partner
- How much does the franchise fee cost? Is a portion of it refundable?
- Is there an initial inventory of supplies or products included with the franchise? Which party is responsible for paying for the initial inventory?
- What are the financing terms? Financing options?
- Who is responsible for determining the site location?
- What percentage of the promotion and advertising costs are the responsibility of the franchisee? The franchisor?
- Are bookkeeping/accounting services available or included in the purchase of the franchise?
- What kind of training, if any, does the franchisor offer? How much training will I receive?
- What’s the necessary amount of working capital for the franchisee to have in order to keep the franchise going until it starts turning a profit?
- Are the premises purchased or leased?
- Are other franchisees permitted to open a franchise in the immediate vicinity now or at a later time?
- Which party is responsible for setting hiring procedures?
- Will the franchisor have the absolute privilege of terminating the franchise agreement if the franchisee fails to meet the terms and conditions of the agreement?
- Are there any circumstances or conditions under which the franchisee can terminate the franchise agreement?
Common Reasons why Some Franchises fail
Before signing on the dotted line, examine — to the penny — the franchisor’s monthly profit/loss statement. Not every franchisor is willing to open their books; be extra leery if your request for financials is refused.
Most franchisees fail due to one or more of the reasons below:
- Hiring advisers with little or no experience in the type of franchise you want to run simply because it “saves money.”
- Neglecting to consider legal matters thoroughly.
- Failing to verify what the franchisor tells you about the franchise.
- Failing to speak with existing franchisees.
- Failing to find out why other franchises failed.
- Not developing and following a solid business plan.
- Failing to conduct market research.
Protecting Your Franchise Investment
The potential for danger lurks everywhere when purchasing a franchise. Make sure you have a trusted adviser on your side who knows what questions to ask and what pitfalls to avoid.
Above all, never forget that franchising is a business. And as is the case with any business, potential pitfalls abound. Hire an experienced franchise attorney to ensure things go smoothly.