Why You Should Seek Legal Advice Before Buying Into an Existing Business
Thinking of buying a franchise for your business? Investigate everything before you spend. Before you sign the dotted line, really read this article for tips on evaluating prospective franchise opportunities. When you purchase a franchise, you can receive support and proven product and service branding and sell proven support and service at lower costs than you could do it yourself. In short, you can reap huge benefits when you own a franchise.
But, what if you decide to buy such an opportunity that promises much money down but doesn’t deliver in the long run? Will you lose a lot of money? No, definitely not. As a rule, franchise ownership is a lucrative investment only if you are willing to invest back a substantial sum of your savings or income. And you should never forget that running any business involves running expensive operations at some point.
Some franchisors provide franchisee earnings claims, or income statements, which include gross margin figures. Some other franchisors provide earnings estimates by considering certain factors such as sales volume, average ticket price, and average ticket price over a specified period, number of outlets, and various other factors. Although these reports can be very useful, it is important to be aware that these reports can also be manipulated and the original figure can be significantly overstated. If you are buying a franchise and looking for earnings, make sure that the franchisor provides earnings claims with the numbers you are considering.
There are many reasons why someone would want to buy into a franchising opportunity. Perhaps they have an existing business that would benefit from the franchising model. Or maybe they are considering buying a franchise so they can start their own business. Perhaps there are personal reasons for buying into a franchising opportunity. Regardless of the reason, it is important that you know the franchisor’s track record. You need to make sure that there aren’t any significant signs that they are losing money on their franchisees.
When buying a franchise system, it is critical that you have a licensed professional such as an accountant or a lawyer review your agreement. The laws regarding franchises vary from state to state and a franchisor cannot operate without having a copy of the FDD Franchise Disclosure Documents signed by a CPA or an attorney. These documents provide detailed information about the business entity. The accountant will review the technical terms of the document in order to ensure that it is legally enforceable. They will also look at whether there are any material conflicts between the information provided and the financial statements that the business has filed.
It is important to remember when buying a franchise that there are significant costs associated with franchising. Many of these costs come from initial fees that cover the cost of advertising, trademark names and the cost of having a qualified workforce. Many franchises also charge royalties based upon the success of the franchiser’s sales. If you are considering buying into an existing business instead of starting your own that offers franchising opportunities, it is critical that you thoroughly review the contract before agreeing to buy into it.