Why you need a Franchise Consultant to review all documents prior to signing.
When buying into a franchise program having a qualified franchise consultant by your side is important. You will also need a franchise attorney and an accountant who are both familiar and experienced with reading franchise contracts.
A seasoned franchise consultant understands franchise relationships (especially the relationship between franchisees and franchisors), and handling situations that might arise when their client is a franchisee.
Many Franchisors will state that they do not allow changes to the franchise agreement, don’t believe it. Franchise consultants are specialized in the industry and know what parts of the contract are negotiable, and what parts are not. With over 30 years in the industry, I have not as of yet worked with one franchisor that hasn’t allowed changes.
An experienced franchise consultant can identify potential problems before they happen. Many problems that could have been resolved before signing can become large, costly problems later. Your franchisor is on your team and typically there aren’t major legal issues that arise. But with any large monetary venture, it is always in your best interest to have experts on your side to provide you with peace of mind, and ensure you are getting the best deal.
A franchise business consultant can help a franchisee every step of the way, including:
Evaluation of the franchisor, the opportunity to review the Franchise Disclosure Document (FDD).
Review of the lease for a potential business location for a franchise.
The potential negotiation of a franchise agreement prior to signing it
A qualified franchise consultant can help you to understand the terms, and may also protect you from a mistake you might not be able to foresee on your own. We can also advise you on the opportunity before you’ve signed papers, and can tell you if the opportunity is one that has the possibility of being lucrative with time.
From the start, your franchise consultant will review the franchise agreement and discuss with you the items that might be of concern to you.
Whether a franchise consultant only deals with franchisees, or also represents franchisors (in which case we might have more of an advantage because we have a balanced perspective on the industry), and should have a solid knowledge of the laws and regulations for franchising in your particular state.
Check the Financial Performance
You can certainly determine the ‘health’ of any franchise company by reviewing the legal disclosures in its Franchise Disclosure Document or FDD. This important document contains an array of information about the company such as its officers and directors, litigation history, bankruptcy and audited financial statements to name just a few. But the most important of all is Item 19 the FINANCIAL PERFORMANCE REPRESENTATIONS. This will clearly show the viability of the entire system, franchisor location earnings along with franchisees.
RED FLAG! If no Item 19 is offered, pass on the concept!
Compatibility
Most franchisors will have a structured process for you to follow. A good franchise company will be responsive and as transparent as possible in the mutual evaluation process. Some franchisors will test a potential owner during this evaluation process. This helps to determine if he or she will be a match for the franchise and is able to follow directions and execute tasks. Certainly, this is exactly what a franchise company is looking for in a qualified candidate, and, if that isn’t you, there is no ‘good’ franchise for you.
A Franchise to Fit Your Life
Honestly evaluate who you are and where you are in life and understand where the franchise company is in its own life cycle.