What You Need to Know Before Buying a Franchise

From yoga studios to restaurants to gyms to professional service companies and everything in between, owning and operating your own franchise can be a great way to become your own boss and rake in serious cash while building on brand name recognition and other intellectual property already in place. But in too many cases, the franchisee only ends up losing money in startup and ongoing costs to the franchisor.

Often the deal with the franchisor was a lopsided one from the start. Without a doubt, there are countless examples of franchise ownership success stories, but you will want to do your due diligence before taking the step of buying the franchise. Whether you are a business veteran or never worked in business a day in your life, working with an experienced franchise attorney can help you address the following issues before you take the franchise plunge.

What are the Financing Requirements?

Franchisors typically require a significant initial investment, and you will want to make sure you fully understand what exactly these investment requirements are, including whether the franchisor places conditions such as types of financing you can use to buy the franchise

What Ongoing/Royalty Payments are Required?

Many but not all franchisors will demand ongoing payments, which can be in the form of royalty payments that could be fixed or based on a percentage of your profits. Make sure you understand what payments entail, how they are calculated, and whether they are subject to increase at the franchisor’s discretion.

How Much Power Are You Giving the Franchisor?

The franchisor wants to protect its brand name, and they will ask for approval power of certain business choices you might want to make. Make sure you fully understand the balance of power between you and the franchisor before you start investing in business improvements that the franchisor may reject.

Does the Franchisor Have the Right to Amend the Agreement?

When a franchisor retains the right to amend the franchise agreement unilaterally, then you are setting yourself up for a rude awakening after you have spent hundreds of thousands of dollars helping to build their brand. Work with an attorney to make sure your contractual rights are protected.

What State and Local Licenses, Zoning Requirements, and Permits Do You Need?

There may be numerous legal issues outside of the franchise agreement that will come up that you need to be aware of before you’re buying a franchise. For example, the coffee shop franchise may require you to place a large plastic sign over the shop, but the quaint little town you were planning to set up shop in may ban all signs unless they are small and wooden. Your attorney can work with you to review all applicable issues outside the franchise agreement to make sure there is nothing you are missing.

Legal Guidance in Purchasing a Franchise

At The Gouchev Law Firm in New York, we work with businesses of all sizes, including start-ups and franchises , across New York City and New Jersey. Call us at (212) 537-9209 or schedule a free strategy session today to see what The Gouchev Law Firm can do for your business.