Open shop
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Buying an existing business is often a great opportunity for would-be business owners. It is a way to skip the early stages of business development and hit the ground running. However, before making any serious decisions, it is important to understand the legal implications involved in buying an existing business. There are many legal issues that can arise, such as ownership disputes, tax liabilities, and contract disputes. In this blog post, we’ll discuss nine tips for buying an existing business from a legal perspective, so you can approach the process with confidence.

  1. Conduct an extensive due diligence process: Before purchasing an existing business, it is essential to conduct an extensive due diligence process. This includes reviewing all existing contracts, financial statements, tax returns, and employee agreements. You also need to ensure that the business is compliant with all applicable laws and regulations. If you are not familiar with due diligence, it’s a process of examining a business or person before committing to a deal.
  2. Know your seller: Make sure you research and understand who you are buying from. Understand their reputation in the market, and identify any prior legal issues. It is essential to check their credibility in the business world because it can help mitigate future legal risks.
  3. Identify legal liabilities: Identify all the legal liabilities of the company you intend to buy. Legal liabilities can include past lawsuits, outstanding debts, and pending legal claims. Knowing and disclosing these liabilities in advance can help you prepare for their impacts and avoid costly litigation.
  4. Hire a team of legal and financial experts: It’s often recommended to hire an experienced team of consisting of a lawyer and an accountant to navigate the process of buying an existing business, as they can identify and address legal pitfalls that you may miss. These experts can help you manage risks and ensure that you are making an informed decision.
  5. Carefully review all contracts: Be clear about the legal validity of agreements between the seller and its clients, vendors, and suppliers. Be sure to examine any ambiguities or unclear language. This will help you avoid any legal hurdles that may arise after the transaction.
  6. Verify all assets: Conduct an in-depth review of all assets, including intellectual property like patents, copyrights, and trademarks. Ensure they are transferrable to you during purchase. Legally owned assets related to the existing business can help you grow your business quickly and affordably.
  7. Create a sound legal agreement: A strong purchase agreement should include all the critical details, such as payment structure, and contingencies should you find liabilities or other issues that were not disclosed during the due diligence phase. Having a well-written purchase agreement will help avoid future legal problems.
  8. Obtain any necessary permits and licenses: Check if there are any licenses or permits required to run the business and obtain them before the purchase. Some businesses like bars, restaurants, or professional services might need particular licenses to operate under the law. Ensure you understand the legal requirements before you finalize the purchase.
  9. Don’t rush (perhaps a pun intended): Take your time before making a purchase decision. Verify everything and go through the specific terms of the deal, and confirm that you have received everything you need to move forward with the acquisition.

Purchasing an existing business can be rewarding, but it is crucial to take your time and conduct a thorough due diligence process to identify any hidden legal risks. Seeking the help of a lawyer and an accountant, knowing the seller’s background, comprehensively reviewing contracts and identifying legal liabilities, and creating a comprehensive legal purchase agreement are important steps you need to take before making the purchase. These tips will help assure that your new venture sets off on the right legal footing.

Franchise agreements are the heartbeat of the franchise industry. They dictate the relationship between the franchisor and franchisee, outlining everything from branding and marketing guidelines to operational procedures and fees. Let’s be honest. These franchise agreements are VERY one-sided. No one denies it. So, it is not a surprise that many prospective franchisees ask, “Are franchise agreements really negotiable?” The answer is yes – in theory. But in reality, many franchisors won’t negotiate the franchise agreement, and today, we’ll explore why.

Consistency is Key

One of the cornerstones of the franchise industry is consistency. As a franchisor, your brand is your business, and every franchisee should operate with the same level of quality and professionalism that your customers have come to expect. That’s why most franchise agreements are designed to be as uniform as possible, covering everything from equipment, products, services to hiring practices. If you start opening up negotiations with individual franchisees, you risk diluting your brand’s consistency and reducing the value of your franchise system. In short, allowing franchise agreements to be highly negotiable could harm the overall franchise system, dissuading prospective franchisees from investing in your brand.

Franchisor’s Legal Obligations

Another reason franchisors often avoid negotiating the franchise agreement is due to the legal obligations they must fulfill. Franchisees must be provided with a franchise disclosure document that details all relevant information about the franchisor and the franchise system. Any important terms or amendments must also be included in the agreement. Allowing negotiations will only make the process more complex and costly, not to mention increase the risk of improper disclosure. This is why the vast majority of franchisors stick to standardized agreements to save time and minimize risk. But be clear, it is NOT illegal for a franchisor to negotiate a franchise agreement. Instead, they are CHOOSING not to negotiate.

Risk of Losing Control

In addition to the reasons above, many franchisors don’t negotiate the franchise agreement because they want to maintain control over their brand. If too many franchisees are allowed to change the agreement, franchisors are no longer in control of their system, which can lead to a host of problems like inconsistency in operations, disputes over royalties and fees, and even legal trouble. By having a fixed franchise agreement, franchisors are more easily able to manage their system and keep the brand intact.

Non-Negotiable Provisions vs Negotiable Provisions

Another thing to keep in mind though is that not all franchisees are the same. While most franchisors won’t negotiate the franchise agreement as a whole, there are many provisions that can be customized to fit the needs of individual franchisees. For example, the size and scope of territories are often negotiated. And especially in multi-unit franchise purchases, you may be able to get discounts on the franchisee fees, royalty fees or perhaps the time frames to achieve certain standards. Marketing strategies and requirements could also vary depending on the franchisee. In this sense, some franchisors understand that in order to make a deal it is important to treat the franchise agreement not so much a rigid contract, but as a tool that can be adjusted and customized to meet the needs of the franchisees while still holding true to the franchisor’s underlying philosophy.

So, are franchise agreements really negotiable? While they are legally negotiable, many franchisors opt to maintain consistency, legal compliance, and control over their brands by sticking to standardized agreements. However, unique deals are still possible, and there are provisions that may be negotiable depending upon the circumstances. Ultimately, the best thing to do when considering a franchise agreement is to thoroughly examine the provisions and negotiate where you can while keeping in mind the overall structure and philosophy of the brand.

Business Franchise Street Sign
Business Franchise Street Sign

You’re convinced that owning a business is your true calling in life, and you decide to invest in a franchise. But before putting pen to paper, you should do your due diligence and understand all the risks and rewards that come with that decision. One essential step is to review the Franchise Disclosure Document (FDD) that outlines all the necessary information you need to know before taking the plunge. However, reviewing this document can be overwhelming, especially for first-timers, which is why it is best to have a franchise attorney help you navigate through the FDD. In this blog post, we will discuss six major benefits of having a franchise attorney review the Franchise Disclosure Document before signing on the dotted line.

Protection from Fraud
A lawyer who specializes in franchising can assist in identifying the red flags in the FDD. The lawyer can help point out inconsistencies between the FDD and what is being said or promised elsewhere in marketing materials. Having an attorney scrutinize the language of the FDD also ensures that the franchise agreement covers all the necessary clauses, and there is no room for misinterpretation of agreement provisions that could lead to fraudulent activity.

Understanding the Franchise Legal Jargon
The franchise agreement is a legal document that is full of complex legal jargon. It can be confusing to understand what each clause means, and it is easy to miss important parts of the agreement. An attorney who is skilled in franchise law can help explain the terms and conditions in simple language. The attorney can also help ensure that you understand the implications of each clause before committing to the agreement.

Negotiating Terms on Your Behalf
The FDD will often contain non-negotiable terms and conditions. However, some franchisors may allow for certain clauses to be negotiated. With the assistance of an attorney, you may be able to negotiate on clauses such as payment terms, renewal options, and territories. This could potentially save you substantial amounts of money in the long run, or secure a better territory for your franchise.

Guidance on Compliance
Federal and state laws regulate the franchising industry. Failing to comply with these laws can have catastrophic consequences on your investment. An experienced franchise attorney can assist in ensuring compliance with the regulations. The attorney can review the FDD and offer advice on mitigating risks of legal violations.

Avoiding Ambiguity
There can be instances where the FDD is ambiguous, and what is stated in the document can be interpreted in many ways,. An attorney can help clarify the ambiguities and ensure that what is being promised in the FDD or franchise agreement is clear, ensuring there is no room for misinterpretation.

Ensure Disclosure is Complete
The FDD contains essential information that you need to know before committing to a franchise. In some instances, franchisors may withhold crucial information. Occasionally you might see a FDD that does not have the required financials or other disclosures. A franchise attorney will be able to check that all the necessary disclosures have been made in the FDD so that you are well-informed about your important decision.

Conclusion

The FDD is your key to making an informed decision before committing to a franchise. Taking the time to have a franchise attorney review the FDD will make sure you are well-informed about the terms and conditions of what is often a lengthy and complex document for most people to understand. It is a small price to pay compared to the potentially significant losses that you could incur without the professional guidance of a franchise attorney. You owe that to yourself before you invest your life savings.

One of the biggest concerns that business owners have is dealing with a legal or business crisis. Whether it is a lawsuit, a data breach, or other sensitive issues, a crisis can greatly impact a business. In fact, it is not unusual for many businesses to close within a year of experiencing a crisis. Knowing how to properly manage a business crisis can make all the difference in saving your company from bankruptcy or other legal liability. In this blog post, we’ll discuss some helpful tips on how to deal with a legal or business crisis.

  1. Be prepared. The old Boy Scout adage means you are in a state of readiness. Don’t wait for a crisis to happen before you start thinking about a crisis plan. Develop a plan of action now, and regularly review and update it. Outline the steps you would take if different types of crisis happen, and be sure to include instructions for your team. This will help to ensure that your business can respond quickly and effectively in the event of a crisis. In my experience few businesses are genuinely prepared.
  2. Communicate clearly. Work to communicate with your employees, customers, suppliers, and other stakeholders regularly. During a crisis, it is important to provide updates about the situation and what you are doing to manage it. Be transparent about the impact of the crisis on your business and what you plan to do to mitigate any negative impact. Having a communications/public relations team in place for the situation is important.
  3. Stay calm. During a crisis, emotions can run high, and it is easy to make rash decisions. This is why it is important to stay calm and level-headed. Your team will look to you for guidance and leadership. Avoid making decisions based on fear or anger, and take the time to think through all your options before making a decision. Stay in the present. Determine the steps to help get you out of the crisis and concentrate fully on those steps.
  4. Seek legal advice. A legal crisis can be particularly damaging to your business reputation and financial footing. It is essential to seek legal advice during any legal crisis. An experienced attorney can offer expert guidance on how to manage the situation, protect your business interests and reduce any negative impacts. Look for an experienced lawyer who is willing to make tough decisions and the ability to work under time pressure. Believe it or not, this can be difficult for some lawyers. Many lawyers are unwilling to share an opinion out of fear the answer is wrong. You should hire a lawyer who has the ability to give clear and actionable advice.
  5. Learn from the crisis. Once the crisis has passed, it is essential to go back and review what happened and how you dealt with the situation. This should include an honest evaluation of what went wrong and what you could have done better. Use your findings to improve your crisis management plan, so you’re better equipped to deal with any future crisis.

A legal or business crisis can happen to any business. But how you deal with it can be the difference between the business failing and succeeding. To deal with a legal or business crisis, ensure to be prepared, communicate clearly, stay calm, seek legal advice, and learn from the situation. With a solid plan in place, you’ll have the tools you need to help protect your company’s reputation, finances, and future.

Notetaking
David Travis, Unsplash

Thinking about buying a franchise?

Franchises can be a great way to start your own business. They offer the benefits of being your own boss with the support and resources of a larger organization. But there are some things you need to think about before making the decision to buy a franchise including the financial stability of the franchisor, training and support, brand recognition, and location.

Financial Stability

Financial stability of the franchisor is essential when considering a franchise purchase. Before you sign a franchise agreement, it is important to understand the franchisor’s underlying financial health in order to determine the sustainability of the business model. Knowing whether a franchisor has adequate resources to confront issues and grow over time, as well as their experience in working with franchisees is key. Financial due diligence is invaluable during the selection process and must take into account profitability, cash flow, debt load, liquidity amongst other financial metrics. Purchasing a franchise with an unstable franchisor can lead to difficulties and ultimately negative consequences for your business. Financial stability should remain high on your list of criteria when you are examining prospective franchises to buy.

Training and Support

Training and support from the franchisor is essential in enabling you to succeed as a franchisee. All franchises are not created equal in this regard. You need to find a franchisor who will provide detailed training materials, guidance and resources which allow for an easy transition into running a successful brand. This training does not end after the initial purchase; it often continues with refresher training and other materials for improvement over time. Ultimately, training and support from a franchisor must provide essential advice and direction to ensure that purchasing a franchise is rewarding both financially and professionally.

Brand Recognition

A brand that is recognizable is a key to a successful franchise. Purchasing a brand that has recognition and strength in its marketplace will give you a head start compared to other businesses in the same industry. Consumers are more likely to recognize and purchase from a brand they are familiar with, generating repeat sales and brand loyalty. This is why brand recognition when purchasing a franchise is essential to ensuring your ability to succeed long-term. By investing in franchises with brand recognition, you have a better chance to provide your customers with an experience they already know and love, making it much easier for you to hit your growth targets.

Location

Another key to franchise success is location–not only location within your area, but location within specific regions of the country as well. When selecting a franchise, it is important that research is done in order to determine whether it will be successful in a given area. Understanding the nuances of buying franchises in different regions of the country can make all the difference when it comes to reaping maximum benefits from your investment. A franchise that’s popular in the southern part of the country may not make it in Iowa. Does the franchise have a track record of success in your region or similar markets? And in your local area, your location needs to be visible and accessible to potential customers, taking into account local population trends as well as competition from similar businesses.

Conclusion

You can increase your chances of success by taking the time to thoroughly research a franchisor’s financial stability, training and support, brand recognition and location. A good and well-planned franchise that aligns with these four considerations can be a wise decision for any would-be franchisee. As I always say, every franchise is not built the same. Choose wisely!

If you have a little bit of time left, how about start writing your own bucket list
Glenn Carstens-Peters, Unsplash

If you are a business owner who is looking to sell or transfer your business, then it is important to understand the importance of effective succession planning. Succession planning helps ensure the future of your business is bright and secure, regardless of who owns it. Let’s break down what succession planning entails and how it can help protect both you and your business.
The Benefits of Succession Planning
Succession planning involves preparing for the eventual transfer of ownership of a business from one person to another. It can provide numerous benefits, including ensuring the continuity of the company, preserving its value, and protecting against unexpected changes in leadership. It also prevents disputes between shareholders or members and provides clarity on expectations for employees, customers, and suppliers.

Succession Planning Strategies
When it comes to succession planning strategies, there are several key elements that should be taken into consideration. First and foremost, a comprehensive plan should be in place which outlines all aspects of the transition process. This plan should include goals for both short-term and long-term success; details on ownership structure; plans for financing any necessary purchases; and an exit strategy for those owners who are leaving the organization. Additionally, it is important to create a timeline with specific milestones that need to be achieved in order for the transition process to proceed smoothly.

It is also essential to ensure that all stakeholders involved have a clear understanding of their role in the process as well as their responsibilities after the transition has been completed. This includes not only current owners but future owners as well. A client of mine undergoing the succession planning process is sitting down with his executive team and a facilitator to get honest feedback on who is truly interested in buying the business and leading the company into the future. Not everyone is interested or equipped to lead a company. It is important to identify those people BEFORE an event occurs that may leave your company vulnerable. If the executive team does not wish to take over, he has a strategic buyer in mind. Finally, consider hiring outside advisors such as attorneys or accountants who specialize in helping businesses with their succession planning needs.

Conclusion

Succession planning is an essential part of any business owner’s operations—regardless of whether they are looking to sell or transfer their business down through family generations. By investing time into creating a comprehensive plan with clear goals and timelines, businesses can protect their value now and into the future while avoiding potential conflict between stakeholders during ownership transitions. With careful thought put into these processes beforehand, businesses can ensure that they remain successful no matter who owns them down the line!

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I saw a great post from divorce attorney Eliana Baer about her answer when a client asked her whether she believes in settlement or litigate, litigate, litigate. Her post is a fun one but the answer is an important one for clients (and often lawyers) to understand.

I am a believer in settlement under the right circumstances and when it is in the client’s best interests. If you can settle your dispute reasonably it is a big benefit to you. You can save on attorneys’ fees, but maybe even more importantly, you take control of your case to determine the outcome on your own. In those circumstances your case will not be determined by a judge, jury, or arbitrator all of whom may give a wholly unpredictable and surprising result. Sometimes that result is good and you’re happy you took it all the way to trial or hearing. But other times the result is disappointing and then you surely wish you would have settled.

The timing of serious settlement discussions is important. In my experience it is hard to settle reasonably if the timing is too early. If the lawyers do not have all the facts, an understanding of the law or comprehend the possible downside of their case, it is incredibly hard to settle reasonably.

In order to position the case for settlement it is important the other party understand the upside of my client’s case and the downside of their own case if a settlement is to occur. But keep in mind this process is going both ways. Our client also needs to assess the risks of proceeding to trial as well. For business cases like we handle, it is usually important for our client to also consider “business factors” because we are generally talking about money at issue. Business factors may include the time it will take you away from your work to continue with the case, whether you can collect from the other party, or whether the monetary expenses of proceeding to trial or hearing justify the possible recovery.

It is rare but sometimes I’ll hear from the client that it is about the principle of the matter. Trust me, it is rarely about the principle of the matter in the end. A client usually cares about the costs dearly. I can only remember a couple of rare instances where a client said it was about the principle of the matter and actually meant it.

Abraham Lincoln once said:

“Discourage litigation. Persuade your neighbours to compromise when you can. Point out to them how the nominal winner is often a real loser – in fees, and expenses, and waste of time. As a peace maker, the lawyer has a superior opportunity of being a good man. There will still be business enough. Never stir up litigation. A worse man can scarcely be found than one who does this.”

While I understand the wisdom in Lincoln’s quote, it seems Baer’s answer to her client’s question about whether she believes in settlement hits the mark directly and it’s one I wholeheartedly follow when she says,

Yes, but only at the right time and under the right circumstances, provided it is in my client’s best interests.

Just a sudden attempt to express the concept of crime.
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Big news this past week in business/employment law. The FTC is proposing legislation banning noncompete clauses. The agency estimates this could increase workers’ salaries by nearly $300 billion per year.

I’ve never been a fan of noncompete clauses for lower paid workers. But I’ve always believed there is some validity to a business protecting their customer base. There should be a balance between restricting someone’s ability to earn a living v. allowing someone to raid their employer’s customers when they leave employment.

The proposed legislation would generally prohibit employers from using noncompete clauses. Specifically, it would be illegal for an employer:

  • enter into or attempt to enter into a noncompete with a worker;
  • maintain a noncompete with a worker; or
  • represent to a worker, under certain circumstances, that the worker is subject to a noncompete.

The proposed rule would also apply to independent contractors and anyone who works for an employer, whether paid or unpaid. It would also require employers to rescind existing noncompete clauses and actively inform workers that they are no longer in effect.

The proposed rule would generally not apply to other types of employment restrictions, like non-disclosure agreements. However, other types of employment restrictions could be subject to the rule if they are so broad in scope that they function as noncompete clauses.

The FTC is asking for comments so the proposed legislation could change from the proposal. However, one thing is clear – noncompete clauses are heading to extinction. The trend has been heading in this direction and this proposal could accelerate that trend even faster.

It will also be interesting to see whether this proposal has an impact in franchisor-franchisee situations. It seems franchises will need to be ready to deal with the fact that noncompete clauses could go away. Time will tell.

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BoliviaInteligente, Unsplash

Last week I wrote about how the franchise industry has it wrong. But don’t misunderstand me, that doesn’t mean the future of franchising isn’t bright. In fact, the breadth of the franchising industry is pretty staggering.

Red Boswell writes on the FranchiseWire blog that the 2023 will be the best year ever in franchising. He says there are 12 reasons why the future looks bright for franchising. I go through his points below adding some of my own comments. Make sure to read his article. I did find his perspective interesting.

  1. Franchise Brands are joining forces. Boswell says there are strength in numbers. With brands joining forces the organizations are becoming more professional with stronger systems and support for franchises.
  2. Franchising is attracting more professionals. I have been noticing this for many years. Former corporate managers and executives are turning to franchising as the alternative to start their own businesses.
  3. Franchise consultants are going mainstream. Here’s one to be careful on though. All franchise consultants are not the same. Find a consultant that is independent and not beholden to any particular franchise brand(s). Joel Libava has an entire guide on how to hire a franchise consultant.
  4. Private equity loves franchising. In my experience that is a positive but at times is also a negative for franchisees. Private equity loves franchising, but mostly private equity loves making money. So often the founder driven franchise changes when private equity takes over, sometimes for the better and other times not so much. But I agree that private equity allows for more sustainable growth.
  5. There are more ways to get together. There are many conferences and events to connect and learn about franchising.
  6. Innovations are making franchises better. Many franchises are leveraging technology to improve their brands.
  7. Franchise education is growing. Colleges and universities are introducing franchise and entrepreneurship majors bring more educated and qualified people to the industry.
  8. The industry is prioritizing inclusion. There is always work to be done in this regard but I agree the franchise industry is working on becoming more diverse.
  9. There are more franchise opportunities in more sectors. Franchising is not just fast food. One of the largest growing segments is the home services industry where I have had several clients buy franchises over the past couple of years with success.
  10. There is a wealth of information about franchise opportunities. There are so many sites out there about franchising you could drown. Find reputable sites that provide independent information. (I’ll write a blog post on some of my favorite reliable sites soon).
  11. Financial Disclosure. Item 19 of the FDD allows franchisors to disclose their financial performance representations. More and more franchisors are taken advantage of the opportunity to inform prospective franchisees of their finances. Always be sure to investigate these financial performance representations carefully.
  12. Franchising Support. Boswell points out the the International Franchise Association (IFA) is always advocating for the industry. This is true. As a prospective franchisee though, always try to find independent sources. As an example the IFA loves to tout that franchising gives you a better chance to be successful than independent businesses. The truth and the reality is that franchise businesses fail at roughly the same rate as independent businesses.

What do you think? Do you see a bright future for franchising?

Rise And Grind
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You may want to own your own business but you also don’t want to quit your day job. Is it possible to find the elusive extra income to add to your bottom line and possibly even give you the freedom to quit your job in the future?

Kimberly Crossland has a great post on the Franchise Direct blog discussing just how you might be able to start your own franchise side hustle.

Is it easy?

Of course not.

But she discusses some basic elements you should look for when trying to find a franchise side hustle. Those elements include:

BACK OFFICE SUPPORT

If you are going to have a side hustle, back office support is essential. Things to look for include call centers to help with marketing, accounting support, billing, and appointment booking.

TURNKEY OPERATIONS AND PROCESSES

The benefits of owning a franchise in theory are the turnkey operations and processes. But in my experience, all franchises are not created equal in this regard. Really examine this factor hard and put the franchise to the test. Talk with several franchisees to determine if the franchisor’s processes are effective and beneficial.

RECURRING REVENUE MODELS

A recurring revenue model is ideal. It is tough to chase customers all the time. And if this is a side hustle, you want to avoid that. Find a business where customers need to use your service over and over again.

FEWER SALES; MORE SERVICE BASED

Again, a side hustle is tough if you are constantly selling. Service based models enable you to manage operations and grow while not going all-in with the business from the beginning.

The place where I am seeing the biggest opportunity in franchise side hustles is the home services industry. Many of home services franchises meet the elements discussed above. Right now though keep in mind that hiring employees is one of the most significant challenges faced in starting a side hustle. One franchisee I represented recently told me his business was really taking off, but the only problem was finding enough employees to grow. No matter what count on it being work. There is no such thing as an easy side hustle.