Lanard and AssociatesLanard and Associates2023-11-20T22:48:53Zhttps://www.lanardandassociates.com/feed/atom/WordPress/wp-content/uploads/sites/1503340/2020/03/cropped-Fav-icon-32x32.jpgOn Behalf of Lanard and Associateshttps://www.lanardandassociates.com/?p=494392022-11-16T20:23:22Z2022-11-16T20:23:22ZIndustries that thrive during times of economic challenges
While no single business is guaranteed success, some industries seem to thrive during recessions. People have been willing to pay for these goods and services even when money is tight:
Repair services
Business consulting
In-home senior care
Cleaning services
Food and beverage
Information technology or IT
Franchisees can benefit not only from these enterprises being recession-resistant but also reap the rewards from various types of support from franchisors. Instead of starting from scratch, you buy a proven model that includes operating details, training and marketing plans developed and tested by franchisors.
How much capital must you have?
Many believe they need hundreds of thousands of dollars to buy a franchise. That may be true for some options, such as quick-service restaurants or massage therapy businesses. As reported by CNBC, the average initial investment to open a franchise is $250,000, not including real estate.
But there are other more affordable options for prospective franchisees; some you can buy well under the average. Many are in industries considered recession-proof. Entrepreneur Magazine has a list of 24 top-ranked franchises for under $25,000. Rising interest rates may make these businesses desirable for those with less cash on hand.
Research and review are critical
Besides the price tag, it is essential to do extensive research about franchise options. There are many questions to ask yourself. What are your personal goals? What role do you want to play? What type of commitment are you willing to make? What kind of business do you want?
Once you figure that out, it’s time to choose a specific franchise. Here is where it is advisable to consult with an attorney focusing exclusively on franchise law. Experienced franchisee lawyers provide extensive reviews of all documents, identify red flags, and when necessary, can negotiate terms that protect you legally and financially.]]>On Behalf of Lanard and Associateshttps://www.lanardandassociates.com/?p=494292022-10-18T21:14:13Z2022-10-18T21:14:13ZThe lease agreement can make or break your business
The first step in finding a location for your business is usually working with a real estate broker. Once you find a suitable property, the broker will help you negotiate specific business considerations, such as the lease’s term, square footage, minimum monthly rent, common area charges and possibly percentage rent, which is based upon your gross sales.
Franchisors will also likely review the lease to ensure that their interests are protected and that it meets their requirements. It is crucial to understand that the franchisor is only looking out for itself and not you. Most leases require that tenants personally guarantee that you will meet your rent obligations while limiting your options when challenges arise. The personal guaranty means that your personal assets (bank accounts, stocks, bonds, etc.) are backing the financial obligations under the lease of the tenant entity (LLC or corporation).
If you are located in a shopping center or mall, the landlord will also want to pass along extra charges, such as a pro-rated share of their operating expenses, including some taxes and insurance costs. But these contracts should never be considered boilerplate, and certain items can and should be excluded from the lease agreement. These include:
The depreciation and amortization of the shopping center or mall
Cost of repairs for damage caused by the landlord or another tenant
Capital expenditures made by the landlord, such as repaving the parking lot
Legal fees related to the lease agreement
Taxes based on rental income for the shopping center
Taxes based on the sale or purchase of the shopping center
In all, our firm has 28 items that we feel should be excluded from the charges passed through to a tenant as part of the common area charges in the lease agreement. Also, for specific landlord costs not excluded, we believe tenants should be able to negotiate a reasonable cap on allowable charges. We also fight for lease terms that include your right to review the landlord’s books and audit them when you believe errors have been made over what you’ve been charged.
Maintenance responsibilities
The lease agreement should stipulate who is responsible for upkeep and repairs. The breakdown is typically designated as such:
Landlords are usually responsible for major structural repairs, such as to the roof and facility-wide electrical and plumbing. They must also maintain common areas and ensure that the center complies with all codes.
Tenants are typically responsible for anything within their own space, including plumbing and electrical. They must repair damaged plate glass and doors within their business as well as non-structural repairs. Tenants are also usually responsible for maintaining heating, ventilation and air conditioning systems or HVAC.
Gray areas often arise over plumbing or electrical repairs as pipes and circuits may run through several tenant locations. For instance, a pipe could burst inside your business, but the problem could have resulted from older, deteriorated plumbing throughout the shopping center. The lease should specify how these situations will be handled when repairs are needed. Here is another crucial note on the HVAC system. Make sure you have it checked thoroughly before signing the lease to gauge its condition. This is typically one of the costliest items you will face, and it is usually the tenant’s responsibility to maintain, repair and replace.
It is also crucial that you have the right to make any alterations necessary to the property during the lease to comply with the terms of your franchise agreement.
Indemnification from the landlord’s compliance failures
A commercial lease attorney can also protect you from liability for various legal concerns that should solely be the landlord’s responsibility. This includes indemnification for hazardous substances found in the shopping center, including your premises. Without this, you may be held responsible for the cleanup or costs associated with the cleanup of toxic substances. You should also be protected against lawsuits and fines due to the failure of the landlord to comply with laws, such as the Americans With Disabilities Act.
Considerations over the lease’s term
You should understand how you are affected initially by lease terms. But you also need to think ahead about what happens when your lease ends, and you want to renew, or you decide to sell your business before the lease ends and want to assign the lease. A common lease term is 10 years. Here are essential items to understand and define in the agreement:
What date does the lease start, and when does it end?
What is the date that rent commences (if different than the commencement date)?
When will you receive a notice for the lease expiration and renewal? Six months before?
What options are available for renewal?
Do the initial term and renewal timeframe align with your franchise agreement terms?
What will the rent renewal cost?
While no one can predict the future, it is generally a good idea to lock in a renewal rate based on current values rather than relying on the fair market value at the time of renewal.
Tenants are also strongly advised to negotiate the right to assign the lease in case things change and you decide to sell your franchise. If you sell to another franchisee or the franchisor, you should be able to assign the lease free of charge. Having the right to be released from any personal guarantees is crucial once you assign the lease to the business’s new owner. You definitely do not want to guaranty the financial obligations after you have sold the business.
Vital use provisions to include
The lease agreement should also address compliance with your franchise agreement and obtaining permits to make necessary alterations to the property. Examples of these clauses include:
Ensuring that the permitted use clause includes everything you agree to sell as a franchisee.
Stipulating that you have exclusive rights in the shopping center for your type of business, thereby prohibiting the landlord from leasing another space to a competitor, and putting penalties in place if that occurs, which may be a reduction in your rent.
Getting landlord and local government approval for signage before the lease is signed.
Having the right to terminate the agreement if you fail to receive government approval for signage after the lease is signed.
Having the right to terminate the lease if you cannot receive governmental approval for permits within a specified time.
This final provision is also crucial when costs related to permitting approval make the buildout prohibitive.
Default by the tenant or landlord
If you do not comply with the terms of your lease agreement, it is essential to have a system in place to remedy the situation. These issues typically involve monetary defaults, including failing to pay rent on time, and non-monetary defaults, such as a deadline to repair a broken window. Monetary default notices are usually five to 10 days, and non-monetary default notices can run up to 30 days. If you breach the contract, landlords may be able to enforce these remedies:
Terminate the lease
Accelerate your rent, meaning you must immediately pay all rent for all months remaining of the term
Remove or sell off your property
Likewise, if the landlord does not live up to their end of the bargain, it is crucial to have remedies in place for your benefit. If a structural issue isn’t addressed within the timeframe stipulated in the lease and your business is damaged, you should also have remedies to enforce. These can include:
Withhold or reduce rent
Implement repairs and invoice the landlord
Terminate the lease
The agreement should outline a reasonable amount of time to address defaults and protect your interests.
Experienced legal guidance can ensure you are protected
Most landlords require personal guarantees, meaning your home and investments could be on the line in case of a default. Experienced lawyers understand numerous ways to limit your exposure, as well as relieve you of any further responsibility if you assign your lease to a new owner.
Your attorney will also painstakingly check the lease to ensure that all of the business terms included in the letter of intent that was negotiated for your benefit were transferred correctly to the final lease agreement.
It is also crucial that you have the right to make any alterations necessary to the property during the lease to comply with the terms of your franchise agreement. Attorneys specializing in commercial leases and franchise law understand the many complicated facets of becoming a franchisee and can reduce the risks while protecting your personal and professional assets.]]>On Behalf of Lanard and Associateshttps://www.lanardandassociates.com/?p=492612022-09-19T11:33:18Z2022-08-24T15:36:25ZAssessing your territory
The biggest advantage of choosing a franchise is having access to a successful brand with time-tested, proven procedures and practices and marketing support. But your business can suffer if another franchisee or the franchisor encroaches – or starts selling in your territory.
Remember that franchisors make money by adding franchisees. However, most successful brands maintain a balance to meet the demand for their product in a given marketplace. They understand that, in most cases, protected territories help franchisees, which benefits everyone in the long run.
The first place to look to determine whether you have an exclusive or protected area is Item 12 of the Franchise Disclosure Document (FDD). Franchisors must disclose the territory and if they have exclusive territorial rights.
Craft a comprehensive franchise agreement
While the FDD contains crucial information supplied by the franchisor, the territorial rights must be clearly spelled out in the franchise agreement. You can avoid potential headaches by consulting with an experienced franchise law attorney who can spot red flags and understand how to negotiate these complicated contracts.
Depending on your market and the brand, a territory may be defined by population, zip codes, demographics, marketing area, online sales, location, etc. Some franchisors may require specific requirements to maintain that exclusivity, like sales quotas. While some franchisors may be less willing to negotiate these terms, having a lawyer focused on franchise law can help you achieve a result that works for both parties.]]>On Behalf of Lanard and Associateshttps://www.lanardandassociates.com/?p=492312022-09-19T11:33:24Z2022-07-21T20:25:56Zone out of every five businesses fail within the first year. Nearly 50% go out of business within five years. However, the rate is significantly lower for franchisees, with some studies showing that fewer than 5% fail within the first year.
That makes sense because, in most cases, franchisees follow proven and successful models and practices by popular brands that have been around for a long time. Still, operating a well-known and thriving franchise is not a guarantee of success, and some franchisees struggle from the outset. Here are a few reasons why.
It is the wrong idea or franchise
Researching a franchise system is crucial to grasp how the community will receive it. Many believe they will be automatically successful by buying into a fast food chain. Fast food franchises may have universal appeal, but not all brands are popular, or the market may be saturated with competitors.
Another key component is operating a franchise with a business model that is easily understood and duplicated and includes extensive support and training for franchisees and their employees. If the concept is complex or too vague or franchisor support isn’t available, the chances for success are less likely.
It is in the wrong spot
Seasoned franchisees see “location, location, location” as a crucial component. Even the most popular and successful franchises may not be destined for success if they are set up in isolated areas or places inconvenient for consumers to reach, such as in a shopping center with low visibility or on a metered city street with limited parking.
Too many competitors
Over 750,000 franchise establishments exist in the U.S. in various industries. If your heart is set on opening a franchise restaurant, but your market is full of similar options, you might want to consider a brand that offers a dining choice or type of fitness or massage business that is not already tapped out or another product or service that is not provided in your area. You may also face competition from other franchisees of the same brand. Many franchisors limit the number of franchisees in a geographic region, but some do not.
They do not follow the system
American business owners have historically been regarded as independent and creative entrepreneurs. But franchising is not a venture best-suited for mavericks. Franchisees are typically more likely to succeed when they follow the company’s procedures and systems. A central reward of being a franchisee is taking advantage of these proven methods.
They cannot or will not put in the time
Owning a business is nothing less than a full-time job, regardless of whether you start a company from scratch or become a franchisee. Expect to work long hours, especially at the beginning, while you are training staff and learning the ropes. Failure is more likely if you try to keep another job, have family considerations that require a substantial chunk of your time, have significant health issues or anything else that takes your attention away from your franchise. The idea of “absentee ownership” may sound appealing, but often it is a ticket to failure.
They have unrealistic expectations
Too many prospective franchisees believe that owning a well-known and recognizable brand, provides them with instant success. But remember that you will pay more up-front and later on for the more popular franchises. In many cases, it can take several years to turn a profit.
They lack the necessary funds
Some people scrimp and save to raise the capital for a franchise fee and other initial expenditures to open the business, but they do not have enough cash to absorb additional costs, working capital or ride out economic downturns and other challenges. Some new franchisees find they can’t afford to pay for local marketing or employ the number of managers the franchise model requires.
They lack patience and grit
Part of being a business owner is knowing that situations will arise over which you have no control, such as a recession or a pandemic. Many franchisees were doing very well when the Covid 19 pandemic hit, but a sizable number of them could not survive. Those who understood the risks going in had contingencies in place and worked with franchisors to weather past the rough patches. Those who survived understand that more challenges will likely arise.
What if I want out?
For some, this once-promising opportunity to fulfill their dream of becoming a business owner can turn into a nightmare, and they want to cut their losses and move on. However, they must understand how termination works under the franchise agreement. These documents are typically thorough and weighted in favor of the franchisor. It is vital to understand these provisions before signing the franchise agreement.
Unless you can prove that the franchisor breached the contract by not holding up their end of the agreement or did not disclose or misrepresented critical information about the franchise, your likely options are to sell or transfer the business or ride it out until the contract ends. In many cases, you can ask the franchisor for help by providing additional training or renegotiating the territory if the location is hurting your bottom line.
What is the most crucial factor for a successful franchisee?
In short, it is you! While we have outlined many of the challenges and roadblocks to success, successful franchisees understand that the attitude they bring and the qualities they possess will primarily be the difference between success and failure.
It is also essential to understand that most prospective franchisees are not blindly wagering all their savings on a whim to be successful. Most educate themselves by working with an experienced attorney who understands the legal requirements and nuances of franchise law.
Franchising remains one of the most efficient and fulfilling ways to achieve your dreams of business ownership. Your attorney can help identify the potential risks and help ensure that you understand the rules and requirements of being a franchisee. It is a formula that has worked for countless successful business owners.]]>On Behalf of Lanard and Associateshttps://www.lanardandassociates.com/?p=492182022-09-19T11:33:29Z2022-07-01T16:08:24ZConsider these factors when assessing franchise opportunities
Economic uncertainty creates strife for consumers and businesses but can also reduce competition and create marketplace gaps that need to be filled. If you are considering becoming a franchisee, research is crucial for finding the right fit. Here are three vital elements to consider when assessing franchises:
Differentiation: Does the franchise offer identical or similar products or services as other businesses in your preferred area? Starting a business that distinguishes itself from others during a time of questionable economic security may have a better chance of thriving.
Innovation: The franchisor plays a crucial role in your success. Choosing a well-known brand that constantly updates policies and procedures to improve its brand and deal with economic and other challenges can help you hit the ground running.
Resiliency: Along with innovation, brands that adapt to changes beyond their control are among those that typically survive economic challenges in better shape than others. These franchises are focused on giving you and other franchisees the tools, guidance and training necessary to navigate difficult times.
A crucial part of evaluating franchises is comparing unit economics, measuring profits and how well franchisors manage costs. Franchises that do not have strong unit economics may not offer a strong return on your investment. It is critical to inquire with other franchisees in the system what are both their revenues and their bottom line so you can verify the claims of the franchisor and have a better sense of what you can expect as the return on your investment.
A strong defense is often the best offense
Franchising provides a successful and established business model, and many franchises have survived or even thrived during previous recessions and times of uncertainty. But due diligence is essential to protect your investment and your economic future well-being.
Doing your own research is crucial, so you understand the challenges that lie ahead. But franchising comes with complex rules and regulations, requiring experienced legal guidance. Lawyers focusing their practice on franchise law know how to spot red flags and can also help you assess opportunities for success.]]>On Behalf of Lanard and Associateshttps://www.lanardandassociates.com/?p=492132022-09-19T11:33:33Z2022-05-31T20:42:39ZFranchisor responsibilities
Before we get to the primary duties and responsibilities for franchisees, here is what you can expect to receive from this relationship. Franchisors try to grow their businesses by opening successful franchises in as many places as possible. Their bottom line increases by adding new locations and carefully selecting franchisees they believe will succeed. Most franchisors are also dedicated to helping franchisees succeed for the benefit of everyone involved. In general terms, franchisor responsibilities include:
National advertising and marketing
Initial and ongoing training for franchisees and their employees
Regular evaluations
Researching, developing and managing new products and services
Managing territories to ensure franchisees are successful without infringing upon other franchisee locations
Providing advice to franchisees whenever requested
Providing multiple franchise opportunities to successful franchisees
Recommendations for vendors to buy products from and negotiating bulk deals
Providing site selection assistance
Providing operational support
In some cases, franchisors provide financing or help franchisees secure loans, while others may help franchisees find a location and negotiate lease deals. However, as we will detail later, it is crucial to work with an experienced franchise law attorney to review all contracts and agreements before signing any paperwork or transferring any funds.
Franchisee responsibilities
When franchisees operate successful businesses, they add value to the brand and help other franchisees succeed. Customers who receive excellent service and products from a franchisee in one location will likely visit the same brand in a different area. This reputation is largely earned by the franchisee’s ability to adhere to proven practices and procedures. As such, franchisees are typically responsible for:
Financing the purchase of the franchise
Paying the franchise fee and ongoing fees and royalties
Adopting the franchisor’s rules, operational guidelines and expectations for running the business
Finding a location, leasing and adapting the space for the franchise
Properly hiring and training employees
It is essential to note that franchisors usually provide training materials for all employees, and many even offer training for mid and senior-level workers. Each franchise agreement is unique, so it is crucial that you understand the terms to know what to expect. In most cases, clear franchise agreements help both parties build a stronger brand.
Telltale signs that you fit into this structured partnership
There is no doubt you have your own reasons for considering a franchise. If your goal has always been to be your own boss, there are three basic options: Purchase a franchise, build a business from scratch, or buy an existing business. When looking at the nature of a franchisor-franchisee relationship, here are some traits that will likely help you succeed:
You are a team player and believe that collaboration makes everyone stronger. Many of the 750,000 plus franchise opportunities in the United States offer detailed and proven models of success. While it is not a sin to be a lone wolf in other situations, operating a franchise according to your own standards is generally discouraged.
You work best with structured environments. Franchises provide rigid business models and procedures that everyone is expected to follow. Franchise agreements outline what is required of you, and they are a roadmap to success for many franchisees. If you want to pursue your own path, franchising is likely not going to be a good fit.
You have patience and are not deterred by working long hours. While franchise opportunities contain many readymade perks for support and training, starting any new business requires a considerable investment of your time and energy. If you are considering a franchise as a way to “ease” into retirement, you may want to take a step back and determine whether you are willing to put in the time. Likewise, you should understand that many challenges lie ahead so make sure you can stick to the plan when bumps in the road appear.
You are a good listener and are able to accept criticism and advice. When we toil away working for someone else, most of us have had bosses and companies that offer little, if any, feedback, good or bad. But being a franchisee means you will likely receive evaluations from franchisors which are intended to help you succeed. You should accept this in the spirit that it is intended. You also need to provide clear instructions to your employees on successfully delivering the brand’s products and services. But you should also listen to their concerns.
You are willing and able to enforce the franchise’s brand. Customers keep coming back to franchise businesses because they consistently meet or exceed their expectations. Regardless of the service or product you provide, you will be the driving force for seeing that the business and its employees continue to meet consumer expectations and demands.
You excel within a supportive infrastructure. Whether in your personal life or your career, you likely already know that you need a robust support system to succeed. Franchises thrive primarily from being able to replicate successful business models in dozens, hundreds or thousands of locations. Franchisors already understand that you will be an integral part of growing their brand. Being a prosperous franchisee means understanding how to utilize the support system and implementing sound strategies used elsewhere.
Do not overlook the legal aspects of becoming a franchisee
Regardless of where you are in the process, you have already probably surmised that becoming a franchisee involves a mountain of paperwork, requiring legal guidance. However, it is vital to work with a lawyer who focuses on franchise law. Attorneys with decades of experience guiding potential franchisees understand how to protect your interests by thoroughly reviewing documents and negotiating, when appropriate, on your behalf.
The process is complex, and franchise-related documents include the franchise disclosure document (FDD), which is often over 200 pages long. The FDD contains crucial information that the franchisor is required to disclose. Our review also includes the franchise agreement, which outlines the requirements with which you must comply. In most cases, these are non-negotiable, but we have the experience to identify potential risks and negotiate when necessary.
We provide sophisticated reviews of software licensing agreements, area development contracts, personal guaranties and nondisclosure or confidentiality agreements. We also carefully evaluate commercial leases for our brick and mortar franchise clients. Our lawyers also check the trademarks of the franchisor, ensuring they are federally registered. This is crucial to avoid infringement claims against you.
As part of our review process, we will discuss the franchisor's litigation history and key people involved and whether any bankruptcies have been disclosed, as well as reviewing the franchise agreement (your contract with the franchisor) in detail with you. Investing in a franchise is a life-changing experience. Our mission is to safeguard your future by flagging potential liabilities and helping you avoid unnecessary economic losses.]]>On Behalf of Lanard and Associateshttps://www.lanardandassociates.com/?p=492082022-09-19T11:33:38Z2022-05-24T18:30:42ZKey considerations for first-time franchisees
Statistics show more than 750,000 franchises exist in the United States. The choices can be overwhelming. If you are unsure of a service or product to pursue, here are several elements to help you narrow the field:
What motivates you?
Being a first-time business owner is a lot of work, even if you have a proven brand. Expect to work long hours and be hands-on for some time. Choosing a type of business you are passionate about can be crucial for weathering the ups and downs that will likely occur.
How much can you invest?
Low-cost franchise opportunities are available – some for a few thousand dollars – and some can be operated from home. Established brands will require more significant investments. You might want to consider a new or emerging franchise that offers lower fees. You can view Entrepreneur.com’s 2022 list of the top 150 new franchises to get an idea of the diverse range of opportunities.
How much support will you have from the franchisor?
Most successful franchises provide initial and ongoing training and support. That’s a big part of why they are successful. To gauge their involvement, contact franchisees from the exhibit in the Franchise Disclosure Document (FDD), which contains contact information of previous and existing franchisees who can talk about their experiences with the franchisor.
How will your franchise be affected by the economy?
The pandemic and inflation are two concerning factors for any business owner today. Supply chain issues are also a complicating factor for many. Gauging how other franchisees have dealt with these issues can help you identify franchises less likely to be affected during economic downturns.
Due diligence includes knowledgeable legal guidance
While there are many things you can do on your own to select a franchise that best fits your situation, there is no substitute for experienced legal guidance. Franchise law is complex, encompassing many documents you should have experienced counsel review and possibly negotiate, including the FDD, the franchise agreement and any commercial leases.
Our goal is to provide a thorough review of those documents, identify potential risks and explain your obligations to the franchisor, as well as their obligations to you. With over 25 years of assisting franchisees in obtaining their dream, we understand how to protect your interests and avoid potentially costly mistakes.]]>On Behalf of Lanard and Associateshttps://www.lanardandassociates.com/?p=492002022-09-19T11:33:42Z2022-05-03T14:55:03ZLegal considerations for franchisees
Before signing off on a franchise agreement, it is critical to consult with an experienced franchise law attorney who can provide a sophisticated review of all the documents. But it is essential to have an understanding of what those documents entail as well as your rights and legal protections. Here are terms and documents you should know before investing:
FTC Franchise Rule
The Federal Trade Commission established the Franchise Rule in 1979 and amended it in 2006, effective in 2008, which requires franchisors to disclose critical information about themselves and their company to prospective franchisees. The document containing this information is called the Franchise Disclosure Document (FDD). The FDD outlines 23 categories of the franchise’s operation, including:
The franchisor’s financial statement
Earnings claims
Required fees for franchisees
Litigation and bankruptcy history
The term of the franchise agreement
Investment requirements for franchisees
Obligations of the franchisor to the franchisee
Obligations of the franchisee to the franchisor
Franchisors must also disclose certain information about their officers and other franchisees, and the FDD must be updated yearly within 120 days of the franchisor’s financial year-end. The FTC instituted the Franchise Rule to protect all parties from deceptive practices, such as fraud or misrepresentations in inducing a prospective franchisee to invest. The FDD is required to be written in “Plain English” and not legalese.
The franchise agreement
Franchise agreements are legally binding documents outlining the conditions and terms for the franchisee and franchisor. The agreement stipulates how the franchisee is expected to run the business and what help they can expect from the franchisor. Franchise agreements generally contain these elements:
An overview of the franchisor-franchisee relationship, including the parties involved, the ownership of intellectual property and the franchisee’s obligations to meet brand standards
The length of the relationship
Requirements to upgrade the business’s location
Initial and continuing fees required by the franchisor
The franchise’s assigned territory and whether it is an exclusive or protected area
Site selection and development support provided by the franchisor
Initial training and ongoing support
How franchisees can use trademarks, patents, manuals and other intellectual property
The franchisee’s advertising obligations
Minimum insurance requirements for franchisee during the agreement’s term
Record-keeping requirements
Franchisor’s right to audit the franchisee’s books
Franchise agreements are not boilerplate documents. Since each franchise depends upon its brand promise, these agreements are typically unique and complex. In many cases, they are contracts of adhesion, meaning the terms are typically heavily weighted in favor of the franchisor and franchisors are usually not open to changing them. In an established franchise, the uniformity of the system starts with the franchise agreement.
Timelines
Franchisors must give prospective franchisees a minimum of 14 calendar days to review the FDD. An additional seven calendar days are required to allow the franchisee to review the completed franchise agreement. These two timelines can overlap if there have not been negotiated changes to the franchise agreement.
By this point, you have done extensive research into the franchise and whether it checks all the boxes regarding the type of business you want to invest in and the potential for success. But do not let the excitement of operating your own business overwhelm caution and diligence.
Once you receive these documents, it is essential to have a lawyer skilled in franchise law review them to identify potential red flags. Having a knowledgeable lawyer is a critical last step in the process and can save you from experiencing substantial personal, financial and legal headaches in the future.
Are franchise agreements negotiable?
It depends. Most successful franchises rely on a consistent and sustained duplication of their brand’s procedures and policies. Most established franchises with hundreds or thousands of franchisees are very unlikely to change the agreement.
On the other hand, newer franchises may be more willing to negotiate changes to the franchise agreement. Prospective franchisees for emerging brands are taking a significant investment risk compared to buying an established brand and should be able to expect franchisors to offer more leeway when negotiating contracts. Likewise, you may also have more leverage if you want to buy multiple franchises.
One important thing to remember is to keep your requests reasonable. Franchise agreements are not like other types of business contracts and do not get redlined and negotiated with hundreds of revisions. Do not expect a franchisor to lower fees or change their products or services. After all, they are trying to build a brand and making piecemeal changes to franchisees affects brand consistency, which is a core principle for success.
Understand exit requirements before you sign
The excitement of attaining the American dream of owning your own business, especially if you are a first-time business owner, can sometimes make people forget to look into the future to a time when it might be necessary to sell the franchise. Most franchisors have specific rules for selling an existing franchise.
Under the best circumstances, franchisors offer some flexibility. But you must understand precisely what the agreement stipulates, so you are not caught off-guard if you need to sell the franchise for financial or other reasons. It is also vital to understand the potential tax consequences related to the sale.
Seek specialized legal guidance
The franchise attorneys at Lanard and Associates have represented franchisees for more than 25 years. The franchise agreement is a very important and long-term contract that is not easily understood. It is important to have a full legal review of the documents to ensure that you have a clear understanding of what your obligations are to the franchisor and what to expect from the franchisor. We review critical details of franchise-related documents, such as:
Franchise agreements
FDDs
Multi-unit development agreements
Knowledgeable franchise lawyers also verify that trademarks are federally-registered, valid and live. In some cases, we negotiate franchise agreements on behalf of our clients to protect them legally and financially. Trust is a cornerstone of the franchisor-franchisee relationship, but legal protections are essential for your personal and professional well-being.]]>On Behalf of Lanard and Associateshttps://www.lanardandassociates.com/?p=491922022-09-19T11:33:47Z2022-04-11T20:08:34ZMake sure to cover your legal bases
We will discuss more about some of the intangible characteristics of outstanding franchisees in a moment, but first, we must examine one of the most critical decisions for any franchisee. Hiring a lawyer who focuses on franchise law is vital for navigating complex state and federal laws and regulations.
In addition to understanding how these rules can impact your venture, franchise attorneys meticulously review franchise agreements working, on your behalf to ensure fairness, protect your interests and help you avoid potentially costly legal issues that could arise later on.
The franchise law attorneys at Lanard and Associates ensure that the trademark is valid, live and federally registered. They also perform sophisticated reviews of all crucial franchise-related documents, including the franchise disclosure document (FDD), franchise agreement (the contract you will sign with the franchisor), development agreements, non-disclosure agreements, and other required contracts.
Traits of top-performing franchisees
Last year, Entrepreneur Media made a list of the top traits of successful franchisees. We have evaluated them and would like to go into more detail about these characteristics and why they are important:
Passion
People who buy a franchise usually do extensive research to find the best fit for investing their hard-earned capital. Most franchisees not only look for the opportunity to make money but also offer a service or product that they are excited about. Passion and sound business judgment are always a good combination for successful franchisees.
Patience
Some brands offer immediate earning opportunities, but the upfront investment is usually more significant. Regardless of the brand you select, it is essential to understand that most businesses take time to get up to speed. Those who succeed spend the early days, weeks and months gathering a cohesive team of employees, building a positive marketing presence and establishing a customer base.
Resilience
Every business has its ups and downs, and many factors are beyond your control. Despite investing in a reliable brand, you will likely have many challenges, such as employee turnover, recessions, inflation and even extreme situations, like the pandemic. Franchisees should be prepared for occasional bumps in the road.
Collaboration
In contrast to owning a one-of-a-kind business, franchises have a built-in network of business owners to turn to for advice. Fellow franchisees face the same issues, and most are willing to share their insight. You can gain valuable information by talking to a veteran franchisee. In some systems, franchisees hold regular meetings to discuss what has worked and what has not. Some franchise systems even have franchisee associations where the franchisees meet on a regular basis to share ideas.
Franchisor activities
Just as some franchisees hold regular meetings to share their expertise, most franchisors provide ongoing learning opportunities for their franchisees. Many hold annual conferences and other regular events where franchisees from across the region or country participate. Those who attend often find practical information to make the most of their franchise opportunity.
Compliance
One of the great benefits of owning a franchise is having the ability to follow a system with proven results. Established franchises have spent enormous resources and gone through numerous periods of trial and error to find a successful model. Franchisees who follow the plan usually set themselves up for success. Those who stray, thinking they have a better idea, are often disappointed with the results.
Work ethic
Just because you are buying into a franchise does not mean that you do not have to work just as hard as you would have if you had started a business from scratch. You may have to work to spread the word about your business by doing community events or through other types of outreach and marketing efforts. You may also be in an area where the labor force is tapped, requiring creativity on your part to attract and retain the best workers.
Growth-focused
The most successful franchisees have a mindset of growing their current business or expanding to multiple locations. Franchisors often assist high-performing franchisees who create a strategy for growth as well as those who have the know-how to see it through.
Sociable
Social skills are vital for any business owner who depends upon their customers for success. Many franchisees engage with their customers, workers and vendors on a regular basis. For example, a SubwayÒ franchisee might schedule themself for regular shifts behind the counter making sandwiches. That shows a high level of dedication to the employees and to customers. It can also establish a good rapport with employees.
Confidence
Confidence (not cockiness) is important. We often see the results from successful athletes who rise above others of similar abilities because they are dedicated to doing what is necessary to win. That includes planning, training and learning from their successes as well as their mistakes. Similarly, franchisees should be confident in their investment, the brand they choose and their ability to motivate employees and run a successful business.
Which ingredient likely determines the level of success? You!
Owning a franchise can be a gratifying and profitable endeavor, but franchisors cannot and will not guarantee success. Once the legal issues are addressed and the franchise agreement is signed, your success often depends upon you.
Before you invest, it is crucial to consult with a franchise law attorney at Lanard and Associates so you understand how to validate the opportunity and the legal implications of the documents you will be signing. Once you decide upon a brand that is a good fit for your interests and investment level, knowing that you are signing a franchise agreement that has been clearly explained to you allows you to focus on these so-called “intangibles” that may ultimately decide your success as a franchisee.]]>On Behalf of Lanard and Associateshttps://www.lanardandassociates.com/?p=491652022-09-19T11:33:51Z2022-03-22T19:20:07Zpower to establish minimum standards over pay, work conditions and working hours for the fast-food industry statewide.
Empowering workers or government overreach?
The bill’s proponents say only 3% of the nation’s fast-food workers belong to unions and that these workers lack the power to negotiate salaries due to high worker turnover, inexperience and fear of reprisal. Supporters say the FAST Recovery Act is necessary to address the inequality these workers face.
The measure would not only set industry-wide standards but hold both franchisees and franchisors responsible for compliance. Business groups and other opponents say the government should stay out of private negotiations between companies and their workers. The California Restaurant Association says it would drive fast-food chains out of the state due to massive cost increases for franchisors and franchisees.
Opponents argue that California already has some of the strictest labor laws in the country, including the $15 per hour minimum wage. They say the free market dictates when adjustments are necessary, adding that many fast-food restaurants have already raised hourly wages above $15 in response to worker shortages that began during the pandemic.
Franchisees strive to maintain autonomy
During some of the 2021 committee hearings, several franchisees testified against the measure saying they fear increased regulations will strip them of their identities as business owners, making them little more than employees of large corporations (that is, their franchisors). They say the bill would fundamentally change the franchise model and make them less independent.
Even the bill’s sponsor says it is not the best solution and that the government should not replace a private-sector approach to negotiating pay and conditions for workers. But she believes that the FAST Recovery Act is necessary while restaurants continue to fight efforts to unionize fast-food employees.
On Jan. 31, The union-backed measure – Assembly Bill 257 – narrowly passed the California State Assembly and now awaits action in the state senate. During the 2021 session, the bill fell short in the state Assembly by three votes. If approved this time around, the legislation would be the first of its kind in the country and analysts say it could spur other states to establish their own legislation to address the worker inequality in the fast-food industry.]]>