Franchise Buyers Cut Costly Corners

Prospective franchisees all want to save money on their respective deals and often try to cut corners to make it happen. Experts say one corner that should not …

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Prospective franchisees all want to save money on their respective deals and often try to cut corners to make it happen. Experts say one corner that should not be cut is the hiring of an attorney well-versed in franchise law, and that includes avoiding stand-ins who may know some law that is now franchise law. Taking the advice from the family lawyer is not necessarily a bad thing, but acting on it without counsel from someone who knows all the details can end in disaster. Many people assume that one lawyer is as knowledgeable as the next, but the truth is that franchise law is a very specific specialty that requires expertise that often falls outside the common practice of the average attorney. For more on this continue reading the following article from Blue MauMau.

While it’s hard to generalize about the different approaches that prospective franchisees take when considering a franchise investment, there’s always at least one constant: they want to contain their costs. Unfortunately, for many that means proceeding without the advice of an experienced franchise attorney. That in turn may mean cutting their deal with no counsel at all or it may mean cutting corners with what amounts to a "replacement referee": a family friend who happens to be a personal injury lawyer, a general practitioner or an attorney whose practice areas do not include franchise law.

Even if you’re not a football fan, unless you’ve been living in a cave this month, you probably know something about the NFL owners’ boneheaded strategy of using replacement referees to start the 2012 season. This strategy was doomed to a catastrophic conclusion because the costs of its failure were entirely disproportionate to the benefits of its success. The owners acting on the advice from someone who I’m sure is now a former advisor locked out the regular, professional and fully trained referees in the hope of securing concessions on economic points that probably amounted to less than a single game’s stadium concession receipts.

Unbalanced against this relative pocket change was, well, the integrity of the game. The "badge." The sanctity of the "product," as NFL execs like to call it. It was a gamble like betting your house on a chance to win some nice box seats and a parking pass. Gamble made, gamble lost. In a stunning fit of incompetence on Monday Night Football, the replacement refs robbed the Green Bay Packers of their win over the Seattle Seahawks. Last night, the owners came to their senses and struck a deal with the regular officials. So, everything is now great except for the grave and lasting damage to the "product." And all for the sake of some petty cash.

The obvious lesson that the NFL brain trusters taught us here is not to try to save a relatively small sum of money when the stakes are so high.

For many people who buy into a franchise system, it’s the single biggest investment of their lives. The total investment is often in the six-figure range and can exceed seven figures. Many experienced franchise attorneys will charge a flat rate that’s a small fraction of the prospective franchisee’s total investment. Generally, what you get for that modest additional investment is a thorough, expert review of your franchise disclosure document (FDD) and your franchise agreement, together with its voluminous "ancillary" agreement

Franchise law is like any other specialty with its unique history, vernacular and nuances as well as its own body of federal and state regulations and case law. The franchise industry also has its own practices, peculiarities and market conventions. A good franchise lawyer will have a pretty good handle on these industry fundamentals such that, for example, he or she will know whether the franchise agreement is even fair game for negotiation or whether certain provisions – royalties, ad fees, territorial exclusivity, termination, etc. – are consistent with current market practices.

Remember that you get what you pay for. The NFL saved some chump change on an over-their-heads cast of high school and Division III college referees and lingerie football league dropouts. They indeed got what they paid for: a complete debacle. So don’t drop the ball too. Engage a qualified and experienced franchise attorney before you sign your franchise agreement (note that because an experienced franchise attorney has been through the franchise game drill before, he or she may likely be a lot less expensive than someone who’s learning the drill on your dime).


Mike Sheehan is a franchise consultant and attorney. He is the president of Focus Ventures (www.focusonfranchise.com) and formerly served as a securities attorney and as general counsel for a Fortune 100 financial services company. His Franchise Focus Blog (www.franchisefocus.blogspot.com) focuses on helpful information, tips and current news for prospective franchisees.

This article should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only and you are urged to consult your own franchise attorney concerning your own situation and any specific legal questions you may have.

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