Common Questions About Buying a Franchise
Purchasing a franchise is an excellent way to become a business owner. Like any business, however, it comes with many legal hurdles, and you may have questions regarding those hurdles. At Dady & Gardner, P.A., we have been focused on franchise law since 1994, helping franchisees and dealers across the country. We have answered countless client questions over the years. Some common questions we hear from clients are below.
How do I obtain financing for buying a franchise?
You will need capital to open your franchise. You have several financing options for your investment. The right one for you may depend on your financial situation and your business goals. Popular options include:
- Financing offered directly by the franchisor
- Loans from a commercial bank
- Small Business Administration-backed loan
- Crowdfunding
- Borrowing from friends and family
Your comfort level may vary greatly between these different options. The key is to find the one that works best for your situation.
How do I find out how well a franchise supports its franchisees?
Start by reading the franchise disclosure document that the franchisor must provide to you prior to your purchase. That document should mention the types of assistance and support they provide as part of the agreement. It also contains a list of all current franchisees, pick a few and call them – they are likely going to be your best and most honest source of information. In addition, some franchises have a franchise association made up of franchisees. Their members may offer you insight regarding the franchise.
What are some franchise red flags?
Franchise agreements do not come without risk. To reduce that risk, we look for red flags with any franchise, including the following:
- Does the franchise lack experience in the type of business at issue?
- Are they involved in an excessive number of lawsuits?
- Are their finances in questionable shape?
- Is the franchisee turnover rate high?
- Are the fees out of proportion to the franchise’s success rate?
These are just a few examples. If you have any questions about the franchise you are considering, let us help you do the research.
What should I be looking for in the franchise disclosure document?
The disclosure document you receive from the franchisor contains important information. We review franchise disclosure documents for a number of items, including:
- Financial performance of franchisees in the system
- Assistance or advice regarding location, management, and marketing
- Support from the franchisor after startup
- Obligations on the part of the franchisee
- Financing arrangements
- Limitations on territory, products, and services
- Financial health of the franchise
- Renewal and termination terms
Any fraud or misrepresentation in these documents could lead to legal action down the road.
What are important terms in the franchise agreement?
There are many important provisions in a franchise agreement, but some key terms we look for include:
- Expected investment of franchise fees and royalties
- Operating protocols for running your outlet
- Duration and renewal rights
- Termination or cancellation policies and transfer of resale rights
If you have questions regarding particular provisions of your agreement, we will provide you with a thorough review and report, for a flat fee.
What are Your Questions About Buying a Franchise?
If you still have questions regarding franchise law, bring them to Dady & Gardner, P.A. Our skilled attorneys are reliable and responsive to the needs of our clients. You may reach out to our Minneapolis office by calling 888-261-3777 or contacting us online.