Evaluating the Contractual Obligations of Owning a Franchise

Perhaps the most intimidating part of becoming a franchisee as a novice entrepreneur is sifting through the legal jargon. Franchise agreements are splattered with technical and wordy language, and it’s critical that would-be franchisees don’t just skim it and sign on the dotted line. This document isn’t an iTunes letter of terms and conditions where you can just click “yes” and move on! Franchise newbies, more than anyone, need to know what they’re getting themselves into when interpreting their franchise agreement because there is no such thing as being too careful.

Chief Development Strategist of No Limit Agency* Sean Fitzgerald recommends hiring a franchise attorney to read between the lines of the franchise agreement:  

“Work with a franchise attorney with a track record,” Fitzgerald said. “A good franchisee will be able to negotiate on the franchisee’s behalf and will be able to look for things outside of the norm of a typical Franchise Disclosure Document (FDD) and franchise agreement. Sure, most agreements are standard, but an experienced franchise attorney will be able to detect anything out of the ordinary.”

A franchisee armed with a knowledgeable attorney in this space, like Andrew Bleiman of Marks & Klein, LLP, can allow them to better compare and contrasts the franchise opportunities they’re considering.

“Franchisees can’t cut corners on this decision,” Bleiman said. “Outside of a home, this will probably be the biggest investment anyone could ever make. They need to conduct the proper amount of inquiry before signing.”

Attorneys like Bleiman can assess the status of the FDD and make sure it’s intact. There are particular issues Bleiman recommends franchisees pay attention to when they’re first getting involved in the business, like exclusivity and territory agreements.

“You need to be walking in with eyes wide open,” Bleiman said. “You’re not going to be able to write your own deal, but there may be points in the agreement that franchisees will be able to change. Franchisors are looking to sell franchises, there’s a lot of competition there for qualified prospects. Nascent franchisors can fall into a pattern of awarding franchises to anyone who’s interested because they’re eager to develop and grow.”

It’s Bleiman’s expertise that can help prospective franchisees dodge the incoming obstacles and his legal advice is practically a requirement when franchisees are thinking of working with up-and-coming franchisors. Like a new franchisee, young franchisors have learning curves, too, according to Bleiman. These franchisors aren’t necessarily trying to steal money from the pockets of the inexperienced, but they’re not infallible either, which makes the services of Bleiman that much more necessary.

This research falls on the franchisee, too, and hiring someone like Bleiman can help franchisees distinguish which on-the-rise franchisors can be trusted and which cannot. It’s important that franchisees aren’t just arming themselves with lawyers, but franchise brokers, accountants, anyone and everyone who can help them grasp the significance of a decision like this.

“This needs to be about understanding what they’re getting themselves into,” Bleiman said. “People need to understand – to know – it might take them a year or more to turn a profit. From the outset, you need to make sure you know what you’re getting into.”

Due diligence certainly falls on the shoulders of the franchisees. Franchisees need to be familiar with this push-and-pull dynamic, and they have rights. But franchisees who equip themselves with a team of informed people enhance their chances of winding up successful entrepreneurs.