By Michael Seid, Managing Director, MSA Worldwide
Due Diligence before Investing in a Franchise
A franchise agreement is a contract; it identifies the rights and obligations of both the franchisor and the franchisee. So any attorney who is competent to review a contract should be able to review a franchise agreement, right? Likely not. There are major differences between a franchise and the manner in which it operates, and other forms of distribution and business relationships.
The strength of franchising is its ability to duplicate a business concept and provide a consistent product or service to the public. This consistency enables franchisors to build a brand and a network of franchised locations that reinforce, rather than distort, the brand image. This dependency on consistency, coupled with the franchisor’s responsibility to protect their brand, dictates many of the issues covered in a franchise agreement, and causes these agreements to be viewed as “one-sided” by the inexperienced attorney.
Attorneys unfamiliar with the idiosyncrasies of franchising and the relationship between a franchisor and its franchisees will often tell their client that the agreement is one-sided and favors the franchisor. The prospective franchisee then prepares to discuss those points with the franchisor, only to find their requests for change unheeded. The prospective franchisee is then understandably frustrated, having invested time and money with their attorney to have the agreement reviewed.
Find a Qualified Franchise Lawyer
As a prospective franchisee, you can save yourself a lot of angst by hiring an attorney who is experienced in franchising:
- A qualified franchise attorney can separate contract terms and obligations that are “acceptable” or a “common practice” in a franchise relationship, from those that may be excessive or unusual.
- They can help you negotiate with a franchisor by explaining what changes the franchisor might be willing to make, and which ones will likely be rejected.
- An attorney with franchise experience can also help you evaluate the franchise opportunity and write your own business plan.
Finding a qualified franchise attorney is not difficult. Ideally, you will find an attorney who is experienced working with franchisees. If you know someone (or know someone who knows someone) who has invested in a franchise, you can ask them for a referral. You can also turn to the attorney who prepared your will or represented you at your house closing; they may be able to refer you to a franchise attorney. Your accountant or other professional advisors may also be able to provide such a referral.
If your networking efforts fail to uncover a franchise attorney, we suggest the following resources:
- Your state Bar Association
- Attorneys that routinely practice franchise law are likely to be members of the American Bar Association’s Franchising Forum. You can get information on ABA Forum members at www.abanet.org/forums/franchising.
- The International Franchise Association (IFA) is another good source of contact information for franchise attorneys. Go to www.franchise.org, click on the supplier business district, and then go to attorneys.
- MSA Worldwide publishes a Franchisee Lawyers List on its website, organized by state.
As when hiring any professional advisor, it pays to take the time to talk with more than one attorney, in order to find one with whom you feel comfortable.
We strongly recommend that you have an attorney and other professional advisors assist you in your due diligence before you invest in a franchise. Using an experienced franchise attorney will simply yield better results.
Do you have questions about finding a franchise attorney?
MSA Worldwide provides expert guidance and resources on whether investing in franchising is right for you.