You did it! You finally found the golden franchise opportunity perfect for you. But not so fast; before you make it official, there’s one crucial thing you have to do first. That’s protect yourself legally, and the only way to do that is to hire an experienced franchise attorney.
Many prospective franchisees we’ve spoken to ask us, “Is it really necessary to hire a franchise attorney?” The answer is: Absolutely. There are more than one million lawyers in the United States but only a few thousand who specialize in franchising. Yes, corporate or business lawyers can counsel you regarding business law, but franchise-focused attorneys can offer specialized advice, based on their experience working with other franchisors and franchisees.
What Can a Franchise Lawyer Do for You?
First and foremost, a franchise lawyer will have your best interest in mind; it’s what you pay them the big bucks for (we’ll get to cost further down the blog).
The two most important documents you must to go through before making things official are the Franchise Disclosure Document (FDD) and Franchise Agreement. For a complete breakdown of every item in the FDD, click here. Most FDDs are between 150- to 200-page documents, including restrictions and rules the franchisor requires you to adhere to as a franchisee.
All FDDs and Franchise Agreements are one-sided in the franchisor’s favor, however, an experienced franchise attorney can help guide you through convoluted language, point out vague verbiage that needs further clarification from the franchisor, and possibly help you negotiate the terms of your agreement—all before you put down the money to invest.
They can also help obtain and analyze the franchisor’s competitors’ financial and qualitative data. Another plus is many franchise lawyers deal with the same companies over and over again. That means they know the inner workings of each brand and can provide insight you couldn’t get anywhere else. They can even help you draft questions to ask the franchisor, as well as current and former franchisees.
What Can a Franchise Attorney Help Negotiate?
Not everything is negotiable, but there are a few items a franchise attorney may be able to help you with, including the following:
- Royalty payments
Some franchisors automatically withdraw royalty payments from their franchisees’ accounts. This can sometimes make a particularly rough financial month even more stressful. A franchise attorney might be able to negotiate the payment schedule.
- Litigation disputes
Disagreements are inevitable, especially in business. When there’s a dispute that escalates between you and your franchisor, it’s important to know how to protect yourself. A franchise attorney may be able to help you find a solution that works for both parties.
- Franchise territories
Many franchisors offer exclusive territories. While that may sound amazing, keep in mind franchisors define exclusive territories differently. Sometimes an exclusive franchise territory is confined to the four walls of your business. A franchise lawyer might be able to help you make sure your franchise territory is large enough to support your business.
- Right to close
Although franchising means you’re working with a proven business model, it doesn’t guarantee success. If things don’t go as planned and you’re having trouble keeping afloat, you’re still required to keep your business up and running throughout the terms of your agreement. A franchise attorney can possibly help secure the right to close the business before your term ends.
The items mentioned above are not the only things a franchise attorney can help you negotiate. Remember, every contract is different. That’s why it’s important to consult with an experienced franchise lawyer.
Although some franchisors will say their terms are non-negotiable, a franchise lawyer can still help you get a full understanding of your rights, available protections and legal requirements.
Be sure to let your franchise attorney know beforehand if a franchisor says they are unwilling to negotiate. This will help you save money and the franchise lawyer’s time rewriting parts of the FDD and Franchise Agreement.
How Much Does a Franchise Lawyer Cost?
We all know legal advice isn’t cheap. Thankfully, many franchise attorneys are sole practitioners or work for boutique firms. That means they often cost less than other lawyers. It’s not uncommon for a franchise attorney to charge a flat rate for select services like reviewing an FDD or Franchise Agreement. Otherwise, you’re looking at an hourly fee, plus a retainer.
Experts say to expect to spend between $400 and upwards of $1,000. Keep in mind; if extensive rewriting and reviewing is necessary, you’ll likely pay more for it. But trust us; in the grand scheme of things and compared to your total investment, utilizing a franchise attorney could possibly save you thousands, minimize liabilities and more. It’s safe to say it’ll be money well-spent—you can’t put a price on protecting your financial investments.
To find an experienced franchise attorney in your area, browse through the list on the International Franchise Association (IFA) website. You can also check out the U.S. Small Business Administration (SBA) for a list of local franchise attorneys or ask current franchisees for a referral. As always, if you have questions, your friends at America’s Best Franchises are always willing to help you along your franchise journey, too.