• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
  • Skip to footer
  • Submissions
  • About Us
  • Contact Us
  • Jun 30, 2022
  • Startup
    • Creating a Plan
    • Funding a Startup
    • Franchise Center
    • Getting Your Office Ready
    • Making Your Business Official
    • Marketing Your New Business
    • Personal Readiness
  • Run & Grow
    • Customer Service
    • Human Resources
    • Innovation
    • Legal
    • Operations
    • Risk Management
  • Leadership
    • Best Practices
    • Communication
    • Green Initiatives
    • Open Culture
    • Strategic Planning
    • People Skills
  • Sales & Marketing
    • Advertising and Lead Generation
    • Marketing Innovations
    • Marketing Plans
    • Online Marketing
    • Relationships
    • Sales Activities
  • Finance
    • Budgeting and Personal Finance
    • Payments and Collections
    • Tax and Accounting
    • Pricing Strategy
    • Working with Investors
    • Working with Lenders
  • Tech
    • eCommerce
    • Hardware
    • Software
    • Security
    • Tech Reviews
    • Telecom
  • Shop

SmallBizClub

Helping You Succeed

Home / Startup / Franchise Center / What Do I Need to Know Before I Buy a Franchise?
What Do I Need to Know Before I Buy a Franchise?

What Do I Need to Know Before I Buy a Franchise?

1189 Views

Feb 12, 2020 By Jeffrey Goldstein

Buying a franchise is a complex, long-term investment that has the potential to change your life. If your business succeeds, you may never have to work for someone else again. If it doesn’t, you could lose your investment, and you could find yourself bound by strict non-competition covenants that prevent you from using what you’ve learned to try again on your own.

When buying a franchise, there are three primary legal steps you need to take in order to make an informed buying decision and position yourself for success as a franchisee. These are:

  • Reviewing the Franchise Disclosure Document (FDD)
  • Conducting Your Due Diligence
  • Negotiating Your Franchise Agreement

1. Reviewing the Franchise Disclosure Document (FDD)

The Franchise Disclosure Document is a federally-mandated document that franchisors are required to give to prospective franchisees. It is comprised of 23 “Items,” each of which contains specific pieces of information (or is supposed to contain specific pieces of information) about the franchise opportunity.

When buying a franchise, it is imperative that you review the FDD in detail. From information about initial and ongoing fees to information about the franchised brand, it’s all in there. If you have any questions, or if anything in the FDD seems inconsistent with what you have been told by the franchisor’s sales personnel, you will want to address your concerns before you move forward.

2. Conducting Your Due Diligence

Another key aspect of the franchise buying process is what is referred to as “due diligence.” In a nutshell, this is the process of gathering as much information as you possibly can. There are several aspects to conducting due diligence as a franchisee, including:

  • Speaking with current franchisees
  • Speaking with former franchisees
  • Reading online reviews and browsing franchisee forums
  • Reviewing competing franchise systems’ FDDs
  • Preparing a pro forma and speaking with business lenders
  • Scheduling a visit to the franchisor’s headquarters
  • Reviewing the franchisor’s financial statements (which should be included as an attachment to the FDD)

3. Negotiating Your Franchise Agreement

If you decide that you are ready to move forward with your purchase, the last major step in the franchise buying process is negotiating the franchise agreement. Franchise agreements tend to be heavily one-sided. Franchisors know this, and good franchisors will generally be willing to consider reasonable requests for modifications. From protecting your renewal rights to limiting your post-termination restrictions, there are various key provisions that you may need to negotiate in order to mitigate your risk as a franchisee.

Keep in mind, these are not the only legal considerations involved in buying a franchise. For example, you will likely want to form a corporation or limited liability company (LLC); and, if you will be leasing retail space or a vehicle for a mobile franchise, you will need to carefully negotiate the terms of your lease as well. In order to protect your personal finances and give yourself the best chance of succeeding as a franchisee, it will be important for you to get help from an experienced franchise attorney.

Filed Under: Franchise Center Tagged With: Due Diligence, Franchise, Franchisee, Franchisor

Jeffrey Goldstein

Jeffrey Goldstein

Jeffrey M. Goldstein is a national franchise attorney with more than 30 years of experience exclusively representing franchisees and dealers. He is the owner of the Goldstein Law Firm in Washington D.C., and helps with all of their franchise legal needs including wrongful terminations, breaches of contract, unfair acts and practices, and much more.

Related Posts

  • 8 Perks of Opening a Franchise From Your Home
  • Top 4 Benefits to Owning a Home Service Franchise
  • Beware: A Million Things Can Kill the Deal

Primary Sidebar

Random

Can You Name the Two Most Powerful Words for Business?

Aug 8, 2019 By Dave Berkus

4 Car Accessories for Security and Protection

Jul 2, 2021 By SmallBizClub

Small Businesses Rising: How to Get Through the First Years Financially

Mar 23, 2017 By SmallBizClub

A Beautiful Mind: How New Psychiatrists Can Develop a Successful Practice

Mar 29, 2019 By Rebecca Shipley

The Future of Text Message Marketing in 2017

Jan 18, 2017 By Brian Mikes

Footer

About Us

Small Biz Club is the premier destination for small business owners and entrepreneurs. To succeed in business, you have to constantly learn about new things, evaluate what you’re doing, and look for ways to improve—that’s what we’re here to help you do.

  • Facebook
  • LinkedIn
  • RSS
  • Twitter

Copyright © 2022 by Tarkenton Institute, Inc. All Rights Reserved | Terms | Privacy