Whether you are buying or selling, you should always be aware that Franchise Agreements are written to favor the Franchisor. The best franchises make both the Franchisor and the Franchisee money. The best Franchisors offer meaningful support and hands on training to their franchise owners. Unfortunately, that is not always the case.
BUYING
Franchise brokers advertise great profits in every business magazine. However, these companies make money by selling franchises. Buyers should be aware that there are many risks and very few guarantees. A franchise can be an opportunity to run a well-polished business model or it can be a drain on family finances and time. Buyers should carefully research the franchise and consider the commitment.
Franchisors are required by the Federal Trade Commission to detail the terms of their franchise opportunities in a Franchise Disclosure Document (FDD) (previously called a Uniform Franchise Offering Circular or UFOC). There is no federal registry for franchisors. Some states have registration and disclosure requirements beyond the FDD. Florida does not. In Florida, individual franchises must register to do business with the Florida Division of Corporations, like all businesses, but the franchisor is likely not a Florida business or registered in Florida. With minimal Florida Statutes to regulate the area, in Florida most franchise relationships will be analyzed under the general principals of Florida contract law.
Franchisees are vetted and approved by the Franchisor. Those interested in buying a franchise should do the same. After doing your research, consider contacting and visiting a current franchise owner. If they are willing to share their experience, ask them about:
- the value of the training
- the quality of the materials provided
- the tone and environment of annual meetings or corporate events for franchisees
- the value for franchise fees
- the value for marketing fees
- the frequency of communications with regional or district support
In any case, a new franchise owner needs to understand the documents they are signing. A working knowledge of the short and long term obligations is critical to the day to day operations of the business. The Franchise Agreement is the foundation of that relationship.
SELLING
Reviewing the Franchise Agreement will reveal the terms under which you can sell your Likewise when a franchisee seeks to sell their franchisee to a new owner, the sale will almost certainly require the Franchisor’s approval and often a transfer fee. Similarly, if the buyer intends to keep the business location, transferring a lease will require a landlord’s approval and possibly a transfer fee or rent adjustment.
This obviously isn’t exhaustive understanding of the issues, but is meant to give new (and old) business owners a place to start when looking for information. As you work to make a decision or seek to negotiate, we recommend an attorney to help you navigate. If you aren’t sure if you need an attorney, then you probably do. An experienced attorney can help you cut through the legalese in your documents and understand the fundamentals to run your new business (or get out of an old one). Contact an attorney at Lacey Lyons Rezanka today.