How to Buy a Franchise (from an Attorney/ Former Franchisee)
Owning a franchise can be great - especially if you like independence, autonomy, and freedom. A franchise system usually has a proven formula for success complete with brand equity (why else would you want to buy it?). With a franchise many headaches are removed and chances of success are increased. But it is not without risk.
Hire an Attorney
Buying a franchise is a long-term commitment, often lasting over a decade. Most marriages do not last this long! When thinking about the significance of a franchise commitment, it makes sense to have a legal professional on your side.
When I bought my first franchise (not yet an attorney) I proceeded alone. Utilizing the experience of an attorney never crossed my mind. Confident and brave I learned lots of expensive lessons at my expense.
The benefit of hiring an attorney is to save you money. An attorney experienced in franchising knows what issues are important. A rookie franchisee cannot effectively advocate for her position, despite her level of business experience. This is because franchising is a unique profession. Hiring an attorney is part of the due diligence process.
Hire an attorney early in the process! My job is really difficult if a franchisee has already signed and committed to a franchise system. The leverage is gone. The attorney can help negotiate and avoid pitfalls if employed before committing.
The franchise system is structured for the benefit of the franchisor (the parent company) and not for the benefit of the franchisee (the individual owner). The franchisor has spent lots of money hiring attorneys to draft contracts – the very contracts binding the franchisee for years of her professional life. So, buying a franchise without legal representation means the franchisor has an advantage over the franchisee.
Level the playing field. Hire an attorney. Save money and headache.
Use what I refer to as Casual Observation. This means exploring the geographical market. Drive around. Watch traffic patterns: which side of the road is the “a.m.” side (i.e. does traffic travel on in the morning, on the way to work). Which areas are poised for growth? What is competition like in the area?
Through casual observation you can learn a lot about an area. This is part of due diligence and it is essential. Spend time and invest in your research.
Due Diligence also includes exploring different franchise systems. Meet with different franchise development representatives (i.e. people who sell franchises for the franchisor). Learn about different franchise systems. Contact former franchisees. Contact current franchisees. Explore the litigation history (could be a huge red flag!).
Utilizing a Franchise Coach
What is a Franchise Coach? Franchise coaches are third parties, who assist the prospective franchisee with the purchase of a franchise. Franchise coaches evaluate personality and professional interests in order to align the individual with different brands. Usually compensated directly by the franchisor, they operate a lot like a realtor –getting paid by the seller upon the completion of the transaction.
Similarly to hiring an attorney, a franchise coach advocates on behalf of a prospective franchisee. It is another opportunity to have someone on your side, helping navigate the unknown waters of franchising.
Experience is earned. Create a support team advocating on behalf of you, by hiring an attorney and maybe using a franchise coach. Doing so could save you decades of frustration.
Craig M. Morgan, Esq., Managing Attorney at Providence Law