Franchise offerings and entering into a franchise agreement are complex legal matters. I strongly recommend consultation and review of all franchise agreement and related documents prior to entering into a franchise agreement. There are several matters of due diligence (investigation) of registration matters for example as well as technical requirements for the potential investor that must be met. I have seen time and time again franchisee’s whom have entered into agreement without prior experience, spend their entire life savings or retirement on the initial investment, agree to master franchise territory agreements with unrealistic terms of expansion and growth, pledge their family home as collateral and finance the entire inventory acquisition costs with an SBA loan all without any advice of counsel. By budgeting 1% to 2% of in the initial franchise investment for legal fees would be prudent and will save hundreds of thousands of dollars later.
Franchise Agreements are onerous on the franchisee and it is rare that I see terms favorable to the franchisee. Do your research, investigate and review all of the franchisor’s past and present franchise filings. If they are not registered in your state – do not invest. Research their corporate status with their state and all foreign jurisdictions in which they do business. You should pay particular attention to past and current litigation filings against the franchisor and contact several current franchisees in several different territories and interview them. Finally, put together a team of professionals to assist you. Never sign a commercial lease first. Never sign a franchise agreement in hopes of a future loan to finance.