How to Manage Your Risk When Buying a Franchise
Deciding to start or purchase a business can be both scary and exciting. Aside from purchasing real estate, becoming a business owner may be one of the largest financial investments you may make. When you put your money, time, and effort into an investment like a business, it is important that you take appropriate steps to manage your risk. Hiring an attorney to advise you of legal rights and negotiate on your behalf can mitigate your investment risk and give you peace of mind.
Another way to manage your risk when starting or purchasing a business is to consider buying a franchise. Many of these businesses offer turn-key solutions to people interested in investing in a proven product. Other benefits to the franchisee include having access to business professionals provided by the franchisor who can offer support in operations, marketing, and supply chain management as well as brand recognition that can help bring customers to your door and drive revenue.
But before you get to the stage of counting all your profits from your successful franchise, you will need to do your due diligence on the franchise and its management in order to make a sound decision about your investment.
How an attorney can help you
One of the first documents that will be provided as you consider purchasing a franchise is the franchise disclosure document or FDD. The Federal Trade Commission (FTC) requires that a franchisor provide this document to all prospective franchisees prior to providing them with a franchise agreement. The FDD is a standardized document that lists 23 categories which provide information about the franchise organization, its management, and more. An attorney can help you by reviewing this document and advising of any potential risk to you as a franchisee.
Once you have reviewed the FDD provided by the franchisor and conducted the rest of your due diligence on the company and the industry, you will need to sign a franchise agreement in order start your business. Some of these agreements can be quite complex. You can manage your investment risk by having an attorney review the agreement and negotiate any items of concern with the franchisor.
If your transaction involves working with a franchise consultant, you should not consider that person to be a substitute for legal counsel. Franchise consultants are often paid a commission based on the number of sales they make and may not always be positioned to represent your best interests. A commercial attorney experienced in contract law, can provide you with a non-biased opinion of the documents and offer you advice on protecting your investment and your legal interests.