Franchisee Mistakes

Article by: Lynne D. Shelton

At Shelton & Power, we are commonly asked about what to avoid in entering into a franchise. Below are the 4 biggest mistakes that Franchisees make. However, they all revolve around time. So remember, do not rush, take the time to ensure you are making a solid business decision.

1. Not reading and understanding all of the documents. Many franchisees do not read all of the documents that govern their relationship with the franchisor. You must read all of the documents. These documents hold the very terms that will be enforced upon you and your franchise. While it may be true that the Franchise Disclosure Document consists of the same 23 areas of disclosure for every franchisor, what is contained within those 23 areas varies widely. It is important that after you have read the FDD and Franchise Agreements that you then have an experienced franchise attorney evaluate them as well. Remember you will be establishing a long term relationship with your Franchisor, usually around 10 years or more, so get to know every detail of the requirements.

2. Not asking for better terms. The one misconception that we hear over and over from Franchisees is that the Franchise Agreement is non‐negotiable. That simply is not true, every contract is negotiable. Some terms of course cannot be changed, but a lot of them can. An experienced franchise attorney can help you negotiate the terms of the Franchise Agreement to reach the best possible outcome for your business.

3. Not obtaining all promises in writing. If the salesperson or the Franchise Broker tells you something that is not contained in the franchisor’s documents then you must get it in writing. Franchisors are regulated by state and federal statutes. Make sure that what is promised to you is in an addendum to your Franchise Agreement. Without the addendum, it may be difficult for you to enforce that promise. If the franchisor will not put their promise in writing, and what you were told was material, you should speak with a qualified Franchise Attorney about reporting the franchisor to the Attorney General in the state where you are located.

4. Failing to use Due Diligence. As a prospective franchisee, your due diligence is calling existing franchisees to learn about your potential investment. Speak with many, not just one. Choose different franchisees from various areas and not just from the top of the list. Franchise Attorneys have been known to put the best, most successful franchisees at the top of the list, betting that potential Franchisees will only call a couple. When speaking with the existing or former franchisees, ask the hard questions, not just if they are happy they bought into this franchise.

Although it can be difficult to unearth all the details from the franchisor and existing franchisees, an experienced franchise attorney can help. Remember, two heads are always better than one. An experienced franchise attorney knows what questions to ask, what other prospective franchisees have uncovered, and which systems seem to have a majority of successful franchisees. This is their area of practice, so take advantage of it. Then take it slow, research and be happy with your decision.