Below is a summary of our guide “The First Five Questions Your Lawyer Will Ask You”. Download the full guide.
Taking legal advice is a wise step for anyone considering a franchise purchase. But what should you have prepared for your legal meeting? What will a franchise lawyer ask you?
Here we look at five key questions your legal eagle will want you to answer:
1. Do you have any franchising experience?
“Your lawyer will want to know you are in a position to make an informed decision before committing to a franchise purchase,” says Robert Toth from law firm Wisewould Mahony. For instance, have you talked to other franchisees, experienced lawyers and consultants who are FCA members and have experience in the industry?
“Entering into a franchise is one step, getting out of a franchise can however be difficult and more complex than selling your own business. These things should all be considered,” he says.
2. Have you compared similar franchise systems to the business you have chosen?
Franchisees need to research their franchisors, check the company website, visit franchisees and gain feedback. It’s important to be direct and quiz the franchisor and franchisees about how well support and training are delivered, the franchisor’s business plans and ongoing product and system development.
“Comparing the culture in similar franchise systems and gaining objective feedback from two or three franchisees in each different system will help to identify the right franchise for you.”
3. Have you spoken to other franchisees in the system?
Talk to a range of franchisees, those who are newbies in the system, those who are trading well, and some who are not. More importantly, talk to experienced franchisees who have survived the rose-coloured early years, Toth suggests.
4. Is the franchise system new or established?
The choice of a fledgling or established system is personal, and dependent on financial and life circumstances. While a new system can be a great opportunity to get in to a business at ground level it does carry greater risk than a more mature franchise operation.
“Getting in at ground level on a new franchise system provided will deliver a return to a franchisee as the value in the brand develops and is more widely recognised provided the franchisor has a viable and well managed system,” says Toth.
“Assess your risk profile if you have a very low risk threshold, look for an established, mature franchise system. Consider the effect on your family and personal assets if the business does not succeed.”
5. Have you taken professional advice?
Have you taken professional advice on how to structure the franchise and protect your personal assets?
“A business plan and cash flow analysis will be needed if you are obtaining finance to acquire the franchise. As much as you plan for success, you should also consider the risk of failure,” warns Toth. “To do otherwise would be foolish. This means ensuring that the business risks as much as possible are separated from your personal assets.
“This is the area where franchisees can obtain valuable advice from an experienced franchise lawyer.”