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I Wished I Had Hired a Franchise Lawyer When I Bought the Franchise

Guest post by: Keith Kanouse

Article Overview: In the 34 years of representing buyers and sellers of franchise, I have nearly seen it all. I feel like an emergency room physician when I meet a client who bought a franchise and has lost hundreds of thousands of dollars in a failed or failing business. The franchisor is threatening termination and a suit for lost profits against them personally, there are in breach of their lease and their lease guaranty, and their SBA loan secured by their home is in default.

I Wished I Had Hired a Franchise Lawyer When I Bought the Franchise

In the 34 years of representing buyers and sellers of franchise, I have nearly seen it all. I feel like an emergency room physician when I meet a client who bought a franchise and has lost hundreds of thousands of dollars in a failed or failing business. The franchisor is threatening termination and a suit for lost profits against them personally, there are in breach of their lease and their lease guaranty, and their SBA loan secured by their home is in default.

As part of my analysis of their rights and obligations, 2 of my initial questions are: “Where you represented by an attorney? (There may be a claim for malpractice.) And, did you hire an accountant to help you set of the business and prepare a financial forecast? More often than not the answer to both questions is no.

The usual reasons for failing to retain a franchise attorney and an accountant are:

1. I didn’t want to spend the money – being penny wise and thousands of dollars foolish.

2. The franchisor’s sale representative said that it is not necessary and a waste of money as the franchisor will not negotiate the terms iof the franchise agreement and we are trustworthy people.

3. I know what do by myself. But, buying a franchise is a complex investment. It’s not like buying a car.

I am sure the entire readership of BlueMauMau would appreciate if readers share by posting their bad experiences, why they did not hire a lawyer or an accountant and what they would do now if they could go back and do it all over again.

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Article Tags: buyers and sellers, franchise lawyer, franchisor, guaranty, profits



Related Forum Posts
Re: Enticing Franchises - Top 9 List - All Franchise listed above are in millions of dollars. Do you have the list of Franchise in thousands
Re: Info for would be franchisers... - [quote="Sebastien":1d29sdv1]Like Franchise Times, Franchise Update is a very practical magazine. There is no blah blah, just straight facts that anyone in the franchise community can relate to. I just want to mention that all these magazines are NOT franchisee oriented. I mean these magazines are for franchise professionals. If you're looking to buy a franchise, you won't find much information in there. To answer your question, getting published in Franchise Times was fairly easy. I don't want to brag too much but I think I am known in the franchise industry. I was the marketing guy at Franchise.com for a few years before joining my new company, the World Franchising Network. So people know me and I have a very good relationship with Nancy Weingartner, the Managing Editor at Franchise Times. I was talking with her at the last Franchise Expo South in Miami and she mentioned she'd like me to be profiled. I was like "ok, sure!". I like this franchise executive profile thing in Franchise Times as it is rarely BS. People are usually really natural in there.[/quote:1d29sdv1] Thanks for the follow up Sebastien! And I can't say that I'm surprised that networking with the right people and managing your relationships with them properly are the keys to being published. I guess the old adage holds true of "it's not who you know, but who knows you" that's important.
how much for a franchise fee? - Dear Colleague There is no easy answer to this question. Things to consider: [list=] The sizeof the Franchise Clent base Expected Turnover Intellectual Property costs (recoup) Number of Franchises Number of employees Original Set up costs Franchise admin costs An example: A franchise that I was involved in setting was to a simple "lawn mowing/home repair" franchise. The Franchise included national/local advertising - preparation of client lists - general admin - central accounting etc The Franchise involved 300-500 clients - and an annual turnover of about $300,000 . The annual franchise fee was $30,000. Hope that this gives you some idea Take care Ian[/list]
Re: Franchise Surveys - Another good tool to researching a franchise is to speak with their existing franchisees. This contact information is included in most Franchise Disclosure Documents. In order to get a Franchise Disclosure Document or FDD as it is often referred to, you will have to complete a basic franchise application. The franchisor will then usually provide you with the FDD at that time. Included in that book of information is a list of the existing franchisees, the contract, the investment information etc... This information is required by Federal Law to be disclosed to your prior to making a purchase. So be sure to do your research and start with the Franchise Documents to get the initial information.
Re: Info for would be franchisers... - [quote="Sebastien":2gam0klq][quote="BuzzAroundBooks":2gam0klq]Like Franchise Times, Franchise Update is a very practical magazine. There is no blah blah, just straight facts that anyone in the franchise community can relate to.[/quote:2gam0klq][/quote:2gam0klq] That is really what I look for in any industry publication. We lead busy lives and when people fill their magazines with fluff, not only does it benefit no one, but it makes us truly appreciate those that don't. Thanks!


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