Buying a Franchise: 3 Things You Need to Know
Why take the risk of starting your own business from scratch when you can buy into an already successful chain? Many entrepreneurs think about this every day, which is why they buy franchises.
But buying a franchise isn't as easy as just slapping someone else's logo on your front door. We've written a lot about franchises over the years and have gathered some good information you should consider before taking this step. So before you sign that franchise agreement, here are 3 things you need to know:
1. Know the Franchise
Before you buy into a franchise, you should know what you're in for. Learning how to evaluate a franchise will help you find the hidden costs, understand markets and marketing, and dig deep into a franchise's finances so you can make an informed business decision.
Part of your research should be understanding the franchise disclosure document (FDD). The FDD is mandatory for any franchise sale and will give you background on the franchisor, legal responsibilities, financial audits, and other pertinent information.
2. Know the Agreement
One of the biggest concerns when buying a franchise is the franchise agreement. From how they're drafted to how to get out of one, your franchise agreement will have the greatest impact on whether or not your franchise succeeds.
You'll need to know the proper disclosures, along with any territorial restrictions, fees, and obligations you'll have as a franchisee. And you'll also want to know what happens in case of a breach of contract and your recourse for misrepresentations or failures to provide support.
3. Know the Law
As you've probably guessed, there are a multitude of legal considerations when buying a franchise. From territorial rights in the local market, to accessing the franchisor's financial history, navigating the purchasing process can seem like traversing a legal minefield.
And those concerns don't stop once the franchise is purchased. Franchise owners face legal issues throughout the life of the franchise, like providing continual disclosures, receiving ongoing support, and resisting additional competitors.
It may be easier to face the myriad legal concerns surrounding franchise ownership after talking to an experienced business lawyer.
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Related Resources:
- Browse Business & Commercial Lawyers by Location (FindLaw Directory)
- Buying a Franchise: Overview (FindLaw)
- What is a Franchise License? (FindLaw's Free Enterprise)
- Should Franchises Purchase Business Insurance? (FindLaw's Free Enterprise)