The Fine Print – Franchises: What’s the Deal?

“Dear Attorney,

I’m interested in opening a business, and I’ve been offered a franchise to buy.  Is this a good idea? The contract is really long, and I don’t understand half of it! Help!”

The prospect of a new business opportunity is exciting, and we’re increasingly seeing interest in franchises. While this can be a great opportunity to run your own business while having the support and framework of a proven company’s support here are four things to consider before signing on the dotted line.

What’s a Sweetheart Deal?

If it seems too good to be true, it is. Make sure to do your due diligence and attempt to discuss the business with other franchisees. A legitimate offer should include accurate information and should address some of the obstacles in starting a new franchise.

How can I tell if it’s a one-sided agreement?

By nature, franchise agreements create terms favoring the franchisor. Don’t blindly sign an agreement that can be better negotiated in your favor. Often, franchise agreements are written to virtually eliminate all risk for the franchisor and place all risk on the franchisee. Your attorney can ensure that the terms of the agreement are fair and not one-sided.

How much does a franchise cost?

Unfortunately, the full costs of starting and running a successful franchise can be substantial and aren’t often disclosed in full upfront. Have an experienced attorney review the paperwork before you sign anything. Your attorney will ensure that you aren’t overcommitting and agreeing to unknown improvements and costs.

What is a “Protected Area?”

Many franchise agreements permit the franchisor to openly compete with your franchise in different ways: imposing on your franchise a very narrow market area, reserving the right to open a competing business in your market area through a different name and logo, etc. A business attorney familiar with franchise agreements should clearly advise you on the issues surrounding the competition provisions of your proposed franchise agreement.

Hunt Harris is a corporate attorney at Weaver | Budd, Attorneys at Law.  To schedule a consultation with him, please call (704) 841-0760. The information contained in this article is general in nature and not to be taken as legal advice, nor to establish an attorney-client relationship between the reader and Hunt Harris or Weaver | Budd, Attorneys at Law.

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