Frequently I am contacted by someone who is not only investing in a franchise opportunity, but also simultaneously buying an existing business that is part of that franchise. If you are in that situation, it is important to realize that there are two facets of this situation that are both important to evaluate.
First, you must decide if you want to be a franchisee of the franchise system. This involves evaluating the FDD, speaking with existing franchisees to determine if they are happy and successful in the franchise, going to Discovery Day for the franchise and retaining experienced franchise counsel to review the FDD and franchise agreement on your behalf.
The second piece involves evaluating the acquisition of the existing business. This includes all of the due diligence involved in evaluating a business – accounting review of the financials of the business, reviewing customer lists, employees, including their benefits, contracts, etc., leases (both real estate and equipment), contracts, etc. Next, you will need an experienced business attorney to draft the acquisition documents (Asset Purchase Agreement, Bill of Sale, etc.) and prepare any other documents needed, such as a lease assignment and landlord consent, etc., so that you are provided the representations and warranties that benefit you.
When you are buying an existing franchised business, both of these two pieces must come together. For example, you would want the signing of the franchise agreement to be contingent on the acquisition of the business, and vice versa. The business acquisition must be contingent on not only the franchisor’s approval and your signing of the franchise agreement, but also the landlord’s consent to the assignment of the lease, your ability to obtain financing, etc.
If you are looking to buy an existing franchised business, speak with Nancy Lanard, Senior Partner at Lanard and Associates, at 215-392-0030 x101 for a free consultation on your business goals and how the attorneys at Lanard and Associates can help you reach those goals.