Franchise legal advice

Legal Advice Prior to Buying a Franchise

Are you interested in buying a franchise in the U.S. or in a foreign market? We help entrepreneurs decide if buying a franchise is a good fit. As a potential franchisee, you should consider important issues before purchasing. We provide comprehensive franchise legal advice  to prospective franchisees, helping them decide if buying a franchise is a wise move.

Are you interested in buying a franchise in the Washington, D.C., area or elsewhere in the United States? Please contact us, Mario L Herman and Gregory O Herman today to schedule your consultation for franchise legal advice. As an experienced franchise attorney, we can help you decide if buying an American franchise is a good fit.

Look Before You Leap

Due diligence is crucial for major financial decisions. Before signing a contract, securing a loan, and cutting a check, you should:

• Review the franchisor’s litigation record contained in the franchise disclosure document (FDD);
• Scrutinize promotional marketing materials provided by the franchisor and compare these with representations made in the FDD;
• Contact current franchisees listed in the FDD and inquire whether they would purchase their franchise again (though current franchisees will be reluctant to speak negatively about the franchise);
• Find former franchisees (sometimes a difficult task) and inquire how many left the system and why (keep in mind, former franchisees may be inclined to speak negatively about the franchise);
• Independently research the franchisor and their concept to determine the strength of their trademark, the financial performance of company-owned stores, and whether the franchisor is a “professional franchisor”—that is, a verifiable expert in the concept being franchised;
• Call the Federal Trade Commission (FTC) in Washington, D.C., to determine whether complaints have been filed against franchisor;
• Call franchisee associations (e.g., the Franchise Equity Group and the American Association of Franchisees and Dealers) for additional information; and
• Determine which attorneys formerly have represented franchisees in the network, and inquire about their client’s problems with the franchise.

Learn more about the importance of putting a lawyer with franchise experience on your side or read about franchising success rates.

International Franchise Opportunities

Investing in a franchise concept that has been developed and proven in another country can be a wonderful business opportunity… or a financial disaster. When looking to buy a franchise, it is important to consider that the franchisor does not necessarily operate with your best interest in mind. The franchisor makes its money whether you do or not.

Prospective franchisees of international franchise opportunities should thoroughly investigate international franchise opportunities, reviewing the principals of the company, the track record and financial strength of the U.S. master and foreign-based franchise company, the litigation/arbitrations that the companies have been involved in, and the track record of success in its existing franchises.

Caveat emptor (let the buyer beware) applies to this day in international franchising. Due diligence is an important part of any business dealing. Protecting yourself against undisclosed information is something that you should keep at the forefront of your thoughts and efforts. Without the necessary research, you can find yourself in a binding situation that has drawbacks that you never imagined.

Frequently Asked Questions

Do I need a lawyer before buying a franchise?

You are not legally required to hire one, but it is a wise investment. A franchise is a long-term, often six-figure commitment governed by documents the franchisor’s lawyers wrote. A franchise attorney can review the franchise disclosure document and agreement, explain the risks in plain language, and help you decide whether the opportunity is a good fit before you sign or pay anything.

What is due diligence when buying a franchise?

Due diligence is the research you do before you commit. It includes reviewing the franchisor’s litigation history in the FDD, comparing marketing claims to what the FDD actually discloses, speaking with current and former franchisees, investigating the strength of the brand and the performance of existing units, and checking for complaints. The goal is to find problems before they become your problems.

What is a franchise disclosure document (FDD)?

The FDD is a document the franchisor must give you before you buy, disclosing 23 categories of information about the system, including fees, litigation history, the people running the company, and the franchise agreement itself. Under the FTC Franchise Rule, you are entitled to review it for at least 14 days before you sign or pay anything.

What are common red flags when buying a franchise?

Warning signs include a heavy litigation history in the FDD, high franchisee turnover, earnings claims the FDD does not support, pressure to sign quickly, a weak or contested trademark, and reluctance to let you speak with current and former franchisees. Any of these is a reason to slow down and look more closely.

Is buying an international franchise riskier than a domestic one?

It can carry added risk. With an international opportunity, you also need to weigh the track record and financial strength of both the foreign-based franchisor and any U.S. master, the litigation and arbitration history across borders, and how disputes would be handled in a foreign forum.

Contact Mario L. Herman

Contact us for attorneys experienced in franchise litigation and contracts to ensure you don’t overlook any aspect of buying a franchise that deserves further consideration.