Providing Legal Services For More Than 125 Years

Several Considerations When Buying A Franchise

On Behalf of | Aug 5, 2015 | Business Transactions

For those with an entrepreneurial spirit, purchasing the right franchise can provide instant name recognition, a product to sell, and valuable training. When considering purchasing a franchise, it is essential to have professionals to assist in that endeavor including an accountant and an attorney. Once financials have been assessed, anyone who purchase franchise locations, known as franchisees, have to consider what is called an “economies of scale”; meaning you may need several locations to make a worthwhile return on your investment.

Reviewing the franchise agreements to understand what the franchisor is offering and the cost and obligations associated with the franchise are important. Although many franchise agreements are a take-it or leave-it proposal, it is still critical to understand what you may be agreeing to as to any restrictions in operations or what you can do outside of the franchise business. Other issues such as what locations you can purchase from the franchisor are negotiable and may be critical to a successful business plan.

You will need to negotiate either purchasing or leasing of commercial space and the fit-up of that space to be consistent with the franchise you choose. Whether it is a franchise that requires 500 square feet or 20,000 square feet of space, a commercial lease should be negotiated with a landlord. Of course the tenant renting 20,000 square feet has a lot more negotiating power than the tenant negotiating 500 square feet. Landlords in commercial leases have what they call standard language which they state are in all their leases, yet that may not be completely accurate. I found all commercial landlords negotiate some of their lease provisions, including national or international real estate organizations, and having an attorney assist in those lease negotiations is important. Also no lease with that landlord is better than agreeing to an unreasonable lease. Another location may be a better option than onerous lease terms that will hurt your ability to make a profit or expand your business.

Further, there may be a need to negotiate agreements with your contractors for the fit up of the space and the loan documents of financial institutions related to that fit-up and providing capital leases for equipment. While the franchisee training may include training related to obligations under state and federal laws to employees, your attorney can also assist in that area as well and can certainly assist when any potential claims may arise by employees.

In summary, purchasing a franchise can be a great option for many looking to become business owners with a recognized product and levering the business acumen of the franchisor. As in any business, retaining a team of professionals ready to assist when needed is very important. Any franchisee should line up an accountant and attorney prior to purchasing the franchise.

In having represented a number of franchises, including franchises with locations as small as 500 square feet and those in excess of 20,000 square feet, in negotiating leases with commercial landlords in shopping plazas and industrial sites. I would be happy to assist those who are considering entering into a franchise or existing franchisees who are looking for an attorney to assist them.

J. Daniel Marr is a Director and Shareholder at Hamblett & Kerrigan, P.A. His legal practice includes counseling businesses and individuals on a variety of legal issues and advocating on their behalf. Attorney Marr is licensed and practices in both New Hampshire and Massachusetts. Attorney Marr can be reached at [email protected].