I am intrested in franchising. need help in not making a bad investment.

Asked almost 2 years ago - Houston, TX

company is mr transmission and the other company is all tune and lube . they are automotive companies

Attorney answers (4)

  1. Kevin Brendan Murphy

    Pro

    Contributor Level 15

    Answered . As a franchise attorney who has actually walked the walk, owning and operating a very successful franchise, my take on the subject is somewhat different.

    First of all, talking with existing franchisees is a good idea. But you have to realize something - they tend to overstate their performance, and in many cases, their satisfaction with the franchise. Often what they don't tell you, or how they phrase things, can be more important than what they do say.

    Second, while a legal review is definitely a good idea, the business and financial issues surrounding a particular franchise model are almost always more important than the legal-ese. So you need to use someone that has a track record and background with the business issues in franchising. A good starting point is to ask if they've ever qualified and testified in court on these issues. Using this simple criteria will result in valuable advice that's worth every penny. Would you make any sizable investment or long-term legal commitment without getting the best advice possible?

    Best of luck,

    Kevin B. Murphy, B.S., M.B.A., J.D.
    Franchise Attorney & Franchise Expert
    Director of Operations - Mr. Franchise
    FRANCHISE FOUNDATIONS APC

  2. Neal Jonathan Blaher

    Contributor Level 10

    1

    Lawyer agrees

    Answered . Too often I hear potential investors in a franchise or business opportunity express reluctance over spending a relatively small amount of money to get professional advice and guidance before making the investment, when the investment itself may cost 100 times the amount of the advice. The need for such advice puts me in the precarious position of self-promotion, because while not every type of legal matter requires an individual to retain an attorney, I strongly believe this to be vitally important when considering the purchase of a franchise. Your question suggests you already recognize this. Signing a franchise agreement is almost like entering a marriage --- it is a long term commitment to "living" with someone else, and not all partners are compatible, even in the franchising context.

    On a practical level, the first step is to have an advisor ask you the right (and sometimes difficult) threshold questions to help you decide whether franchising is for you. It may be that opening up a business independently of a franchise concept is more suited for you, or perhaps not even attempting to play an entrepreneurial role but instead working with a partner, or as an employee.

    Once you get past that level and determine franchising is for you, the next step is the evaluation of the franchise that has drawn your attention. Fortunately, franchise law requires franchisors to provide you with all kinds of information, in a standard, mostly readable and comprehensible format. You may have heard by now of the Franchise Disclosure Document or "FDD." The main portion of this document contains 23 standard items with much of the information you need to make an informed decision. It tells you about the the nature of the business, and the fees involved; the backgrounds of the management of the franchisor, on whom you will rely for support and assistance; some of the key provisions of your contract, including obligations of both you and the franchisor; and some statistics on other franchisees and how stable the roster of franchisees really is.

    Attached to the FDD is, among other things, the franchise agreement you will be required to sign. This is another document that is vitally important to be reviewed by experienced franchise counsel.

    Franchise law has much uniformity, though there are still aspects that are unique to the state where you reside. Experienced franchise counsel should be able to assist you with all of the state variances.

    If I can be of further assistance, feel free to contact me for further discussion. If you take nothing more away from this discussion, just make certain that you follow the instincts you appear to have already --- get a professional with the right credentials (and with whom you feel comfortable) to review the offering documents before you sign on the dotted line.

  3. Kenneth F. Darrow

    Contributor Level 9

    1

    Lawyer agrees

    Answered . First and foremost, you need to obtain experienced and competent professional advice from a lawyer who has a background in franchise law. While a franchise agreement is a contract, it is a special type and needs the expertise of a lawyer who has reviewed and hopefully wriiten many. Not every business lawyer possesses the needed skills. He or she will be able to guide you through the FDD, the franchise agreement and other business related issues. As the FTC states on the cover of every FDD: "Buying a franchise is a complex investment." The FTC urges you to see a lawyer and an accountant. While I do not know either of these franchise concepts, I'll guess that you will be making a substantial financial investment. You may be borrowing some or a large part of that from a bank, other lender, family or friends. The amount you will spend on professional advice is a pittance compared to the overall investment, not only financial, but in emotion and effort. This is not a time to be penny wise and pound foolish. You should get as much information as you can(Ms. Lenard suggests various articles), speak to existing franchisees of these systems(you will find contact information in the FDD) and see a professional.
    Good luck.

  4. Nancy L. Lanard

    Contributor Level 13

    Answered . Although I am not familiar with either of these companies, I can lead you to some articles that can help you. I was the legal expert for an article that Costco Warehouse Club's monthly magazine did on franchising. Here is the link to that article: http://www.spadealaw.com/sites/default/files/Fr.... In addition I have written many blog posts on franchising that may be useful to you. One article you may find of interest is "Key Provisions of the FDD That Every Prospective Franchisee Should Know" (http://www.spadealaw.com/blog/2012/07/31/key-pr...). Another good post that I wrote is "Due Diligence For Prospective Franchisees" (http://www.spadealaw.com/blog/2012/07/18/due-di...). If you review my website (www.spadealaw.com) you will find a lot of valuable information.

    With that said, one of the key pieces in evaluating a franchise opportunity is to retain experienced franchise counsel. I work with prospective franchisees all over the country and would be delighted to speak with you about this opportunity. Please feel free to call me at 215-525-1165 x101.

    This response does not create an attorney-client relationship and is not intended to provide legal advice for your... more

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