Q: I'm getting pretty serious about a franchise business, so I thought I should have the contracts reviewed by an attorney. When is the right time to do this? How do I go about picking a good attorney, what should I be looking for in terms of advice, and how much should this cost me? Any other thoughts about how I should proceed?
A: You are absolutely correct in asking these questions, because there are some techniques you can use to maximize the value you get from using an outside advisor like an attorney while also minimizing your costs.
The first piece of advice for anyone in your shoes is to save the expensive parts of your franchise research until near the end of the process. Typically, a few costs, like traveling to the franchise company headquarters or seeking advice from outside advisors, fall into this category of costing you money and should come late in the process.
The reason for this is simple: You may find out other information before you even get to this point in your investigation that causes you to lose interest. If that occurs, at least you won't have thrown away money on these expensive activities.
Once you get near the end of the process, the first question you have to ask yourself is whether you want to have an attorney review the franchise agreement. Let's assume you decide to consult an attorney. There are three basic rules you should follow:
- Make sure you are using an attorney who is familiar with franchise agreements. You wouldn't use a foot doctor for brain surgery, right? Keep in mind that lawyers specialize as well.
- Find out if the franchisor is willing to make changes to the franchise agreement before going to the lawyer. If not, don't pay to have your attorney rewrite the franchise agreement. It will just waste the attorney's time and your money.
- Ask for a fixed rate or an estimate to review the document. With many attorneys charging hundreds of dollars per hour, this is not a good relationship to enter into without some understanding of what the costs may be.
In terms of finding an attorney with franchise experience, the best approach is to get referrals. You can go to the local bar association and ask for attorneys who specialize in this area of the law, or ask franchisees in your area whom they use.
It's also a good idea to bring this up in your conversations with existing franchisees in the system you're investigating. Ask them if they used an attorney and who it was. It's often not important if the attorney is local, and it may be a real advantage if the attorney is already familiar with this particular franchise agreement.
As far as costs are concerned, the best answer is, it depends. If you're dealing with a franchise company that does not modify or negotiate their agreement (this is true with many of the best franchises), then a few hundred dollars to review an agreement should be reasonable.
If the franchise agreement is negotiable, the sky's the limit on costs. Though this may not be the answer you were hoping for, the truth is, if the agreement is negotiable, that's when a good franchise attorney really has the potential to deliver value to you. Even though the fees may be higher, a good attorney should know what to go after to get the best deal.
One final thought about going to a franchise attorney: Remember that it is not the attorney's job to help sell you on the idea of getting this franchise. In fact, most attorneys approach this review from the opposite angle. They try to point out any negatives or areas of possible concern to make sure you are aware of them before you make a decision. This is the attorney's true job. It's what you're paying them to do. Also, remember that an attorney's input is just one of the pieces of information you'll gather and weigh in making your decision. Don't let it be more than that.
Jeff Elgin has almost 20 years of experience franchising, both as a franchisee and a senior franchise company executive. He's currently the CEO of FranChoice Inc., a company that provides free consulting to consumers looking for a franchise that best meets their needs.