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The Right Way to Purchase a New Franchise from
a Franchisor
Before you See Me:
- Pick from businesses that fit you.
-
Successful
franchises exist in just about every business under the sun. So
there is no need for you to pick a business for which you have no
passion just because it looks profitable. You will have to make
your franchise successful using the system the franchisor
provides. The more you like that business, the more energy you
will put into it and the more successful it will be. So take the
time to research the gamut of franchises out there to select the ones
you'd really like to operate.
- Stay within your economic limits.
-
Franchises
exist for everything from home-based to kiosks to small storefronts to
multi-story hotels to billion dollar bottling plants, and franchisees
are making money in all of them. Pick one that leaves you some
economic margin. It's hard to succeed in any venture when you
have to worry about having spent every last dollar to get into
it. There are always unforeseen
expenses.
- Get promotional material from a
variety of franchises.
-
You can
begin to get a clear picture of what franchise will work best for you
by evaluating the promotional material from a number of potentially
suitable franchises. See if you like the flavor of what is
said. See if you agree with their stated business
philosophy. Just don't be swayed by any suggestions that the
franchise will automatically do well - that requires further objective
analysis.
- Speak with selected franchisors.
-
Franchising
is a working relationship. You can find a lot out about how
you'd like to work with a given franchisor by just calling them on the
phone and talking with them.
- Get the legally required offering
circulars.
-
Once you've
narrowed your choices it's time to fill out the applications and send
for the legal documents. Typically this will be in the form of a
Uniform Franchise Offering Circular (UFOC) but you may also encounter
the FTC format that is shorter and contains less information.
The UFOC contains a primary document with over 20 numbered topics and
then also includes 9 exhibits and other attachments. One of the
attachments will be the actual Franchise Agreement. Another
important attachment are the financial statements. And a third
important group are lists of existing and terminated
franchisees. You are entitled to talk with franchisees in the
system to enquire how they are doing and how they like the
franchisor. Give all the UFOC's at least a quick read-through,
noting any questions you may have in the margins. Don't expect
to understand everything and don't form any final conclusions about
any of them just yet.
- Now it's time to contact me.
My Franchise Evaluation and Related Services for You:
- Contact me for a pre-conference
telephone discussion and to set up our evaluation conference.
-
Just give me
call at 303-740-2231. You will either reach me directly
or get my voice mail. I do my best to return missed calls
promptly. You can call evenings and weekends as well because I
am often available after hours by cell phone and if not I do check
messages. I'll need to know the name(s) of the franchise(s) you
are interested in to be sure I don't have a conflict of interest
consulting with you about that particular franchise. If you
like, we can set an appointment for you to come into my office for a
franchise evaluation conference.
- The Evaluation Conference.
-
In most
cases we will meet at my office in a confidential conference
room. The address is 7900 E. Union Ave., Suite 1100, Denver,
CO 80237. This is near the intersection of I-25 and
Belleview. I will give you detailed directions to get here.
Also I have an office in downtown Denver if you are based there.
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If possible
please make me a copy of the UFOC materials and other legal documents
needing review. You don't need to copy the promotional
materials, letters, etc., but you should bring EVERYTHING you have
that relates to the particular franchise to be evaluated.
-
Also you
should bring a pad and writing instruments to take notes. You
will need your notes for later
reference.
-
If
possible, all the primary participants in buying the potential
franchise should attend this conference. This may not always
be possible for each and every participant, but as many as possible
should attend. I assume in most cases this will be 4 persons
or less so please let me know when we make the conference
appointment if there will be
more.
-
At the
conference we will focus on the primary franchise you are interested
in. Our evaluation will permit you to similarly evaluate others
if you desire. We can also take a look at others but time won't
permit a full evaluation of more than one in most cases.
-
Please
allow 3 hours for the conference plus driving time.
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I will
have several goals to meet for you at this conference. The
first is to help assess the compatibility between the proposed
franchise and you. The second is to inform you of salient
features that are negative and outside the norms of
franchising. The third is to inform you of positives that
indicate a better than average franchise. The fourth is to
advise you on aspects of the franchise that might or might not be
negotiable but which you should know of. The fifth is to
answer any questions you might have on the franchise purchase and
related items. We can also briefly cover business formation
matters and lease matters, if applicable.
-
At the
conclusion of the conference we should be in one of 3 basic
situations: The first is that the franchise matters have been
explained and the franchise opportunity looks acceptable as is.
This is not the usual outcome but does from time to time occur.
The second is that the franchise matters have been explained and the
franchise opportunity looks acceptable if the franchisor will
change a few important contract provisions to bring the offer more
into line with the usual franchise practices or franchise practices
that will make the franchise work for you. This is the usual
outcome and I will be going over the suggested changes with you at the
conference. The third is a negative evaluation of the franchise
opportunity. This is also unusual and occurs only if there are
just too many changes needed to make the franchise work for you or if
the UFOC shows one or more critical lackings in the
franchisor.
- Our Usual Response to the
Franchisor after the Conference.
-
Looking at
the 3 basic conference outcomes discussed above, our usual response to
the franchisor is to request the changes we need to make the franchise
work for you. Some franchisors will want your attorney to
propose the changes, but in most cases, the franchisor will
prefer you to propose the changes directly to it. So, in most
cases, we will get the changes in writing and have you propose them to
the franchisor. We will learn much from the way the franchisor
responds to the request. I can say that in most cases we obtain
sufficient changes to make the franchise work so you can purchase the
franchise.
-
Some matters
will be known only after the franchise agreement is signed, such as,
if applicable to the franchise, site location. We want to make
sure before the agreement is signed that such a contingency is handled
so that you either won't lose your franchise fee if a location can't
be found or you will know that the franchise fee won't be refunded in
whole or in part if a location can't be found and are willing to run
that risk. Yes, many persons purchase a site-based franchise
without knowing if a location can be found and then lose all or much
of their franchise fee when a location can't be found in the territory
they are allotted - not a pleasant outcome.
- Finalizing the business entity for
the franchise ownership.
-
As part of
the franchise agreement signing, we will want to finalize the form of
business entity you will use to operate the franchise. Ideally
this entity will be formed prior to the signature of the franchise
agreement, but if this is not able to be done then we want to know how
the agreement will handle transfer to a later formed business
entity. In most cases the default is that the franchisor imposes
a fee on the franchisee for the transfer, so we would want to
eliminate this fee if you formed a business entity within a reasonable
time such as six months after the signing of the agreement. My
services and fees for these matters
- Lease Negotiation and other
Business Matters.
-
If you are
purchasing a site-based franchise such as a fast-food franchise, you
typically will have to sign a lease as a tenant for each
location. If you have never seen a retail strip mall or similar
lease, you are probably in for a shock. They can run as long as
50-60 single spaced pages full of arcane legalese. I have
considerable experience reviewing such leases for clients and can do
so for you at a moderate fee level. I know that most of these
leases are prepared at considerable expense for the landlords and that
the landlords are unwilling to change many provisions even if they
might impose a hardship on the tenant. I will explain these
provisions to you. But there are also quite a number of
provisions they will change, if the changes are well-tailored and
reasonable. I have obtained many such changes for clients.
These changes are also very important to the client as a tenant.
- Ongoing Matters.
-
There are
many business matters with a legal import that can arise during the
franchise. Please feel free to call with any of these
matters. If I cannot assist you, I will do my best to help you
find someone who can.
- Franchise Difficulties.
-
Not every
franchise experience is a good one. Sometimes a franchisee will
run into problems with the franchisor well down the road into
franchise ownership. I have found that even the worst of these
problems can be handled in a good way or a bad way, and I have
generally been successful at helping a franchisee negotiate a fair
outcome without resort to lawsuits. If you believe you are
encountering such a problem, please call me at your earliest
opportunity. As regards fees for these matters, what we
generally do is budget blocks of work representing a controlled
fee. For example, you might want me to accomplish what I can for
a budget of $1200, so we won't go over this until and if we reach that
amount and discuss what makes sense from there. You won't get
hit with any unexpected fees.
My Fees for Franchisee Services:
- Franchise Evaluation Conference: I
have found that a flat rate works best for the conference, and charge
a flat fee of $695, payable at the conference.
- Franchise Agreement Negotiation: Should
you need my services for this after the conference, my fee is usually
in the $300-$600 range.
- Lease Negotiation: Should
you need my services for this after the conference, my fee is usually
in the $600-$1200 range.
- Business Entity Formation: Should
you need my services for this, my fee is usually $750. Please
consult the Business Formation
page on this Web site for further details.
I don't
charge you fees until we are ready to go, so you can call me at 303-740-2231 and
go over the basics with me without concern over incurring a fee. Also, if
you want, you can Contact Me by email from this Web
site.
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