Congratulations on becoming a franchise business owner! Starting or acquiring a new franchise is an achievement and considerable undertaking. Whether you are a seasoned franchisee or new to franchising, these essential tips apply.
Below are my 3 tips you must keep in mind when opening your franchise. If you are anything like me, then you have infinite questions and considerations going through your mind as you contemplate purchasing a franchise. At Morgan & Forb, we want to provide you with the 3 tips that we value as highly important considerations for all franchise purchasers:
1. Use an LLC (not your own name), when Signing Your Franchise Agreement. It is best practice to avoid entering into the franchise agreement in your own personal name. This holds true even if you later transfer the franchise into an LLC, after signing in your own personal name.
Why? LLCs limit liability inherently stands for “Limited Liability Company.” An LLC’s sole purpose is to (wait for it) …limit liability. The importance of waiting to sign a franchise agreement until after you form your LLC cannot be understated. Simply stated, the protections afforded to you through an LLC can be undermined if you buy a franchise in your personal, individual capacity. In the end, you want the LLC to be the record owner of your franchise business.
Do not fret over forming and registering an LLC. It is a quick, simple and generally inexpensive process.
2. Franchise Agreements are the Alpha and Omega to Your Franchise Business. Most prospective franchise buyers want to focus exclusively on the “FDD.” The FDD stands for Franchise Disclosure Document. Federal law requires the franchisor company present the FDD to a prospective buyer before the prospective buyer may buy. The FDD is a very important component to the franchise process.
However, the Franchise Agreement is the actual contractual document you will sign in order to buy your franchise business. In the event that a dispute should later occur, it is the franchise agreement that the parties will look to in order to address disagreements and other issues.
Further, it is the franchise agreement that will instruct the buyer on how to open, run, sell, and close the business. The franchise agreement, like most contracts, addresses all the contemplated terms, material or not. Therefore, reviewing, modifying, and executing the franchise agreement should be a focal point for all soon-to-be franchise buyers.
3. Limit Your Exposure. When opening a franchise, most individuals are focused on opening and making money. This is understandable because we get excited! However, being prudent from the very beginning will pay dividends, especially in terms of limiting your exposure down the road. Specifically, when buying a franchise, it is imperative that you actually consider your inevitable, future exit from the franchise.
At Morgan & Forb, we work to mitigate and limit your exposure to liability from the onset, before, and during your franchise acquisition. This is when we have the greatest ability to negotiate and make positive changes to the agreement. After all, once you sign your franchise agreement (a contract between consenting adults) you will possibly lose all ability to negotiate terms in the future. Therefore, it is imperative that proper negotiations occur before you sign that franchise agreement dotted line. Keep your eyes on the end-game prize!
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