Should I Have Prospective Franchisees Get an Attorney?
As a general rule, “yes.”
A sophisticated business professional may already have an attorney. However, if the attorney is not a franchise specialist, you should suggest that the attorney bring a franchise specialist into the deal on a consulting basis. If your prospect is not a business professional, you should definitely recommend that he or she get a franchise specialist.
It seems counterintuitive to encourage the other side to get an attorney. Here is why I recommend it:
- Transparency. If you tell prospects up front, “I’d like you to have a franchise attorney review this. If you don’t know one, I can give you some names,” you are being honest and straightforward. You increase your credibility.
A franchise specialist can affirm your legitimacy. You will hand your prospect a 150-page to 450-page Franchise Disclosure Document. It will be full of tables, charts, financial statements, contracts, schedules, and exhibits. It will probably be strange and unfamiliar to your prospect.
A franchise specialist can meet with the prospect and confirm, almost at a glance, “Most of these documents are standard. The biggest one is required by law. This seems like first-class work: I’m impressed. It looks like your franchisor really wants to do things right.” When that happens, your franchise sale just got easier.
A franchise attorney can set realistic expectations. I have had non-franchise attorneys demand that the franchisor permanently waive royalties (“My client is already paying an initial franchise fee. He should not have to pay a royalty too”). I have had them demand equity in the franchisor (“My client is going to be paying a lot of money. She deserves a piece of the company”).
A good franchise specialist can advise the prospect that the franchisor will not give up its income stream or its company in exchange for a quick deal.
It lowers your costs. Because a franchise specialist will set your prospect’s expectations, costs will be lower for both sides. The prospect and the attorney will not need to be educated on franchising. The changes they ask for will be less likely to be voluminous and unreasonable.
- It protects you. We will have the prospect sign a statement at the closing of the transaction. The statement will confirm that the prospect had an attorney review the transaction. It minimizes the likelihood that the franchisee will later claim, “I didn’t know what I was signing.”
I keep a list of franchisee attorneys whom I recommend. I have cordial professional relationships with them. Because we have done other transactions in the past, we know one another’s thinking, experience, and integrity. Most importantly, if there is a problem in the franchisor-franchisee relationship, we can pick up the phone and work it out, rather than resort to lawyer letters and litigation.