Buying into a franchise operation can be a risky and stressful experience and if an investor has never done it before it can be downright dangerous. That’s why experts advise prospective franchisees to consult a professional. Franchise disclosure documents can be complex and confusing, and the legalese contained in franchise agreements is often intentionally impenetrable. Professionals can provide objective and accurate advice about the viability of the franchise and the odds of success; two things that are very hard to do when a lot of money is on the line. For more on this continue reading the following article from Blue MauMau.
There continues to be a number of individuals that purchase a franchise without the benefit of professional advice. It can be the biggest mistake they will ever make.
Based upon e-mails and comments I receive from prospective and existing franchisees and feedback from franchise attorneys it’s obvious to me that some individuals continue to evaluate and purchase a franchise without the benefit of professional advice or counsel. Despite admonitions ranging from the American Association of Franchisees and Dealers to the International Franchise Association to a number of franchisors there are certain people that just don’t get it. Whether you’re considering the purchase of a simple franchise concept that requires a small investment or a franchise that includes a bricks and mortar location you need to have professional advice at some step in the process. The only people I would exclude would be a franchise attorney with a financial and franchise operations background and I haven’t encountered many of them purchasing a franchise.
The articles and blogs that recommend prospective franchisees utilize professional advisors, typically base their recommendation upon the following reasons:
- The complexity of the franchise disclosure document and related agreements
- Understanding the legalese contained in the franchise agreement
- Focusing on and interpreting key provisions in the franchise agreement
- Understanding the franchise financial statements
- Providing financial and investment advice to the franchise prospect
However, there are other reasons, some not so apparent, why it’s important to utilize professionals in the pursuit of a franchise.
- They can provide a more objective evaluation of the franchise opportunity based upon their analysis.
- Because of their experience and client practice they may have knowledge regarding a particular or similar franchise that an individual might not have.
- There may be specific obligations created by the execution of a franchise agreement that are not readily apparent
- An objective advisor could raise issues that go beyond simply providing professional analysis. For example, they might discern that the franchise is a risky match for the prospective franchisee who is their client.
- They may ask questions about the franchise operation that prompts or introduces other issues. An open mind can be very helpful.
Although prospective franchisees are strongly advised to engage professional advisors as part of their franchise process some individuals continue to go it alone. This approach is reckless and in the end can be costly. When it comes to utilizing professional advice in the franchise process the biggest mistake is to be penny wise and pound foolish.
This article was republished with permission from Blue MauMau.