To franchise or not to franchise — that often is the question for business owners or potential business owners. Opportunities abound for franchising nationally-known brands as well as starting new franchises.
David Grishman, a shareholder in the Jackson law firm Watkins Ludlam Winter & Stennis, urges caution to anyone considering a franchise.
“The first thing someone wanting to set up a franchise should do is engage an attorney knowledgeable in franchise matters,” he said. “There are many complexities in creating a franchised business and it is best to start off on a sound footing.”
Besides having a sound business concept and model, he said having good legal advice is critical.
“The preparation of a franchise agreement tailored to the business to be franchised and a Uniform Franchise Offering Circular, a disclosure document, are of paramount importance,” he adds. “Failure to attend to the legal necessities of the supporting legal documentation can, and often does, lead to litigation as well as the loss of a business relationship with the franchisee.”
Having assisted many clients through franchise agreements, Grishman has observed some mistakes through the years. The biggest mistake with local persons trying to operate a national franchise is that they often sign documents first and ask questions later.
“Often thinking that a national franchise must be a good business investment because it’s with a national company, franchisees check their common sense at the door and fail to get good legal advice on the front end,” he said. “A common occurrence is a question from a franchisee that goes something like this: ‘I’ve signed this contract. It’s okay, isn’t it?’ They should get a good counsel and ask many questions first.”
Additional advice to those considering a franchise is to speak to as many existing franchisees of the business as possible to assess the problems and successes others have experienced.
“Then, if all is well, proceed with signing the franchise agreement,” Grishman said. “Local franchisees do themselves a great service by obtaining competent counsel on the front end. There are many legal and business issues that must be addressed. By starting out working with competent counsel, many of those issues can be addressed at the outset and thereby avoid problems later on.”
Ask an Expert, an online business advice service, suggests several tips for building a new franchise or opening a franchise business.
“A franchise cannot be built on something that is a current craze, a momentary fad or temporarily fashionable, all of which will have a limited lifespan,” the Web site states. “If you choose to set up your own business, independent of anyone else, you take all the risks of success or failure. Alternatively, if you buy a franchise, you expect to buy a tried and tested method of doing business which will hopefully be successful.”
Contact MBJ contributing writer Lynn Lofton at firstname.lastname@example.org.