By K. Andrew Hall
Krass Monroe, P.A.
Buying a franchise can be a great path from leaving a job to becoming a successful small business owner. Whether you are a corporate employee who has been downsized, a stay-at-home parent whose children are now in school or you simply have wanted to own your own business, franchising can offer you a relatively turn-key solution to starting a business.
Buying a franchise is usually a much easier process than starting a business from scratch. Franchisors bring operational expertise, site selection and marketing support that typically would not be available if you were starting a new business. You also can bring name recognition and brand awareness, oftentimes lower prices from suppliers due to collective purchasing and easier staff recruiting due to the value of the name.
Early in the process of investigating and choosing the franchise system, you should hire a capable attorney, one who has experience in franchising and can help you navigate all the steps to establish and operate your new business. A good franchise attorney should provide the following services:
1. General advice and consulting in franchise selectionA good franchise attorney can be a valuable resource in the process of choosing the right franchise for you. Attorneys often draw a distinction between legal advice and business decisions, but the reality is that the two are hardly ever distinct concepts. A good franchise attorney can help you sift through the infinite resources available to youprint directories, online brokers and individual consultants, to name a fewwithout the pressure of making a sale. A franchise attorney provides an independent and objective view of whether a given system might suit you, taking into consideration your experience, goals, expectations and financial resources.
2. Reviewing the FDDs (Franchise Disclosure Documentsa document provided to you by the franchisor) and franchise agreementsOnce you have selected possible franchises to investigate in more detail, getting to the nuts and bolts is the next step. You certainly should review the FDDs and franchise agreements yourself, but a good franchise attorney can highlight those areas of greatest concern and areas where you have the ability to negotiate more favorable terms. The franchise attorney also knows what areas typically cannot or will not be negotiated by franchisors. Most importantly, the franchise attorney will help you understand what your rights and obligations are (lets be honest, franchise agreements are not written with the layperson in mind), which can help you avoid problems in the future. Once you have decided on a franchise, the franchise attorney can negotiate on your behalf and ease the process between choosing a franchise and signing the agreements.
3. Choosing and establishing franchisee entityWhichever franchise system you select, you should not be the franchisee. The franchisee should be a corporation, limited liability company or limited liability partnership. You should completely understand the tax effects of the various options. Depending on your ownership structure, sources of financing and growth objectives, a good franchise attorney can advise you on the proper form for your new business and will ensure that all necessary or advisable steps are taken to establish the business correctly. As you continue to operate your business, your attorney will continue to work with you to ensure that the limited liability shield is maintained.
4. Real estate lease negotiations or purchase Depending on your franchise, you may have to purchase or lease a franchise location. In addition to understanding the general principles that apply to any real estate transaction, a good franchise attorney will understand the interaction between the franchise agreement and the lease. Most franchise agreements require that the lease contain various provisions, such as an initial term matching the franchise agreement, renewal options that match the franchise agreement or an assignment of the lease to the franchisor upon default. The franchise attorney will ensure that these issues are addressed.
5. FinancingA good franchise attorney should have experience with SBA lending, non-SBA commercial lending, equipment leasing, equity formation and other sources of financing that might be available to you. While financing concerns are relevant to all businesses, franchise finance has some particular aspects. Many lenders specialize in franchise financeyour franchise attorney should be able to help you identify these sources and assist you with obtaining the financing that you need.
A good franchise attorney can be a vital resource in the process of purchasing and establishing your franchised business. But his or her role does not end there. Your attorney is also a valuable resource as you continue to operate your business and when you decide to sell your business. He or she can help resolve any issues with the franchisor that develop during the course of your franchise agreement. With a good franchise attorney at the beginning, the likelihood is that those issues will be few and far between.
For more information on Krass & Monroe, visit the International Society of Primerus Law Firms or krassmonroe.com.