Top 10 Legal Tips for Franchise Buyers
I recently presented a 45 minute presentation on the top 10 legal tips for Franchise Buyers at the National Franchise Expo in Las Vegas, NV, and thought I would offer to email the powerpoint to anyone who wants it. Simply send me an email at:
and I will reply and attach the file. It's a 2 MB file btw, so make sure you mail server can handle that.
Also, I'll do my best to login regularly to check questions and provide what limited guidance I can via an internet forum.
Sincerely, John E. Cereso, Esq. Law Office of Cereso & Associates, LLC
What Are the New Franchise Rule Changes?
Welcome to the community. Your talents will certainly be appreciated here.
Your timing is quite good in that I've been wanting to post this question. I understand that the Federal Trade Commission will modify the franchise rule. Do you know what those changes are and how they will impact future franchise buyers?
Legal horror stories?
I'm interested in your top 10 legal tips slides and will email you shortly. However, to get the discussion going, could you put a few bullet points of tips to consider? I don't mean to be morbid but I'm curious just how wrong it can get when some of these points are ignored. Any horror stories?
I'll add one point and I'm not even on your payroll. Check the fine print of the Franchise Agreement with a qualified lawyer. It seems to me that one of the problems potential franchisees overlook (at least I did) has to be not understanding how difficult it is for the franchise to leave the system while it is quite easy for a typical franchiser to terminate the franchise agreement. Such as:
* If you cannot meet financial benchmarks, one can be terminated. * If you do not meet and rectify operational standards -- you can be terminated.
And not only can a franchiser terminate fairly easily. They can make life difficult and set up another store right down the street through loopholes in the territory clause.
Any thoughts on this?
Ask Away Those Legal Questions
"Better late than never," the saying goes. I'm late with this but I'd like to welcome John Cereso to Blue MauMau's discussion forum. John gave an impressive and straight-forward presentation on the legal considerations of buying a franchise at the Vegas Business Opportunities and Franchise Show. I was later able to interview him and that audio file, a first for Blue MauMau, has been posted on this site.
Having met and spoken with John, I heartily welcome him as one of this site's pioneer members -- along with the rest of you. We welcome the insights he brings to our still very young but already the most popular independent online franchise community Blue MauMau -- as ranked by Alexa. (Having said that, we've a long ways to go still so everyone please bring your franchise buddies here.) So ask away those legal questions...
Basic legalities to consider
What are the basic legal areas I should know about in buying a franchise?
"What are the basic legal
QUESTION: "What are the basic legal areas I should know about in buying a franchise?"
Well, here's my two cents worth. When I think of legalities, I think of the following quote coming from the mouth of the franchisor trying to sell me.
"All the things I really like to do are either illegal, immoral, or fattening." - Alexander Woollcott
That's probably not the case but it keeps me on my toes when I think that whoever is selling me such an expensive product is trying his hardest to pry my money out of my hands. Fortunately, there are certain regulations, industry norms and advisors that help those of us buyers who probably won't really have the scoop on the franchise until well after we've bought the shop. These are the things that I would pay attention to on legal issues.
- The most basic legality to consider is the UFOC. classic letter to the FTC
- Item 19 of the UFOC provides aggregate information on store earnings. Unfortunately, only a quarter of the franchise systems fill out the earning information, the cowards!
- Read the Franchise Agreement very carefully. It's worth your money and time to find and hire a good franchise attorney to go over the small print, written in tiny print and in the right places in legalese gobbledy-gook. A good franchise attorney can help translate the agreements ramifications for you. It's nice to know that you are signing away your first born, especially when it can be written down so smoothly and innocently. Consider if the franchise agreement matches verbal promises. If it doesn't, alarms should be sounding loudly in your head.
- When it comes time to negotiate your franchise contract, you should know that there are many points that a franchisor will not want to negotiate, but my rule is that it never hurts to ask. Again, clarify the franchise contract. You should certainly think of negotiating territory, the transfer of the store to another franchisee without incurring trafer fees or changes in the agreement * The franchisor will probably want personal liability in the terms of the agreement. They might ask you to sign a personal guarantee of performance. Ouch! Work your tail off to limit your liability (a limited liability corporation?) in the agreement. No need to give away your wife when you don't have to. On second thought, maybe you want to do that.
That's my checklist. Read the book Franchising for Dummies to get a better handle on this and hire someone that really knows about the legalities -- a franchise attorney. Try not to look like you're made of money when you see these attorneys. I have known one or two to polish their scare stories in front of a client to make an additional buck or two. Look poor -- dressed in sack cloth and ashes -- in the hopes that their rate will go down out of pity. Nonetheless, a good attorney is a worthwhile investment, considering you are looking at plunking down tens to hundreds of thousands of dollars in starting your franchise.