medieval armor
Henry Hustava, Unsplash

In Iowa, the franchise world has a silent guardian—Section 537A.10(11). It’s called the Good Faith provision in the Iowa franchise statute, and it’s more than just legal jargon; it is the very lifeline that ensures fairness between franchisors and franchisees. But what does this really mean if you are a franchisee?

Good faith isn’t just a phrase thrown around in contracts. It’s a mandate, a requirement for franchisors to act with honesty, fairness, and sincerity. This isn’t about checking boxes or meeting the bare minimum. It’s about integrity, about playing the game the right way.

In Iowa, when a franchisee enters into an agreement, they do so with trust that the franchisor will not only honor the letter of the franchise agreement but the spirit of it as well. Section 537A.10(11) steps in as the enforcer of that trust. It ensures that franchisors can’t exploit technicalities or loopholes to squeeze more out of their franchisees than what’s fair.

This provision acts like a safety net, protecting franchisees from bad faith actions that could derail their business. It’s the law saying, “Play fair, or don’t play at all.” For franchisees, understanding this shield can be the difference between a thriving business and a nightmare scenario.

This provision has been a game-changer for our franchisee clients tangled in disputes with their franchisors. Franchise agreements are notoriously lopsided, skewed heavily in favor of the franchisor, leaving franchisees in a vulnerable position. But this Good Faith protection? It’s a lifeline for franchisees here in Iowa. When it comes to litigation, it’s the kind of clause that makes the franchisor sit up and take notice—because they know they’re up against someone who’s not backing down.

So, as you navigate the complexities of franchise agreements, remember that Iowa Code Section 537A.10(11) is there to back you up. It is a reminder that in Iowa, the law values fairness and good faith, ensuring that the balance of power doesn’t tip too far in one direction. Because in the world of franchises in Iowa, fairness isn’t just a virtue—it’s a requirement.

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Hope
Marc-Olivier Jodoin, Unsplash

Before you pick up the phone or draft that email, pause. You’re not just reaching out to a franchisor—you’re beginning a relationship that could define your next decade. And like any meaningful relationship, how you start will shape everything that follows.

  1. Curiosity, Not Conviction: Too many prospective franchisees approach with a checklist, focusing on what they think they need from the franchisor. Instead, shift your focus inward. What do you genuinely want to learn about this opportunity? What are the challenges, unknowns, and nuances of the business model that you need to explore? Embrace the mindset of a detective, not a shopper. Your curiosity should drive you to uncover whether this franchise truly fits your vision, strengths, and long-term goals. The right questions, rooted in genuine curiosity, will lead you to the clarity you need to make a confident decision.
  2. Shared Values Over Shared Success: Sure, you want the franchise to be profitable. But more importantly, do you and the franchisor share the same values? Are you aligned in how you view customer service, employee treatment, and long-term growth? Profitability is a byproduct of shared values. Before you even think about dollars and cents, ensure you are on the same page about what matters most.
  3. Long-Term Vision, Short-Term Flexibility: When contacting a franchisor, think beyond the initial setup. Where do you want to be in five years? Ten years? But here’s the kicker: Be open to how you get there. The best franchisors are those who can help you navigate the unexpected twists and turns of business. Seek out those who are flexible, adaptable, and eager to support your unique journey.

Contacting a franchisor isn’t just about gathering information—it’s about setting the stage for a lasting, fruitful partnership. Approach with curiosity, align on values, and be ready for the long haul. If you get these mindsets right, you’ll start on the path to building something truly significant.

Go ahead. Reach out with purpose.

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Taking photos of sunsets is always a gamble! You can never trust the weather forecast to tell you whether the sky will be photo worthy, more often than not you’ll probably be disappointed with the result. We had been checking the sky for a week to try and get out for some sunset photos but every evening was overcast. The day this photo was taken wasn’t any different, with a thick bank of cloud on the horizon, but we decided to skip dinner and go a few miles to Talisker Bay to see if the sun would surprise us. We got there about an hour before and knew it was going to be a special evening.
Joshua Earle, Unsplash

Rushing into franchise ownership without preparation is a costly mistake.

To avoid buyer’s remorse, you need to be deliberate in your approach. Here’s how:

1. Self-Assessment: Know Your Strengths and Weaknesses

Before browsing franchises, evaluate your skills, interests, and financial situation. Too often, people pick franchises based on potential profit, not realizing they lack the passion or experience to thrive in that industry. I worked with a client that entered into an agreement with a successful restaurant franchise. The problem? He realized he did not want to spend so much time away from his family and discovered that he didn’t enjoy working in a restaurant, especially when employees failed to show up.Tip: Ask yourself tough questions—are you ready for the commitment? This self-awareness will help you filter out franchises that don’t align with your strengths.

2. Financial Preparation: Understand Your Budget

Franchises are often expensive, and the costs go beyond the initial investment. Many prospective franchisees underestimate ongoing fees and working capital needs. The mistake? Skimping on financial planning and ending up cash-strapped. Action step: Get pre-approved for financing and create a realistic budget that includes a cushion for unexpected costs. This way, you can focus on franchises that truly fit your financial profile.

3. Research the Industry: Look Beyond the Brand

A strong franchise brand doesn’t guarantee success. Ignoring industry trends can lead to failure, even with a well-known name. I have worked with franchisees from so-called top-ranked brands that ultimately failed miserably. Example: Invest in a franchise in a declining industry, and you might find yourself stuck with a business that loses relevance. Research the market, understand its dynamics, and pick an industry with staying power of at least a decade.

Conclusion

By starting with self-assessment, financial prepartion, and industry research, you’ll set yourself up for franchise success, and avoiding common pitfalls that derail others.

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Looking Up
Razvan Chisu, Unsplash

Choosing the right franchise is crucial. Getting it wrong can be financially devastating.

1. What Is the Franchisor’s Track Record?

A franchise with a strong history of success is likely to continue performing well. Look at how long the franchise has been in business and how many units are thriving. A proven track record can indicate the franchisor’s stability and market acceptance. New franchises may look appealing, but they come with significant risks.

2. What Are the Initial and Ongoing Costs?

Misjudging costs is a common pitfall. Beyond the franchise fee, consider costs like royalties, marketing fees, start-up costs, and inventory. Ensure these expenses align with your budget and projected revenue to avoid unexpected financial strain.

3. How Is the Franchisee Support System?

Strong support can make or break your success. Investigate the training, marketing, and operational support offered by the franchisor. A franchise that invests in its franchisees through comprehensive support systems is more likely to see its franchisees succeed.

4. What Are the Terms of the Franchise Agreement?

The fine print matters. Carefully review the franchise agreement, focusing on renewal terms, territorial rights, and exit strategies. Many new franchisees overlook these aspects, leading to conflicts or limitations later. The idea that you can simply pivot to an independent business if the franchise fails is a misconception.

5. How Does the Franchise Handle Competition?

Competition impacts profitability. Research how the franchise differentiates itself in the market and protects its franchisees from internal competition. A franchise that actively manages and mitigates competitive threats is more likely to ensure long-term success.

Conclusion

Thoroughly evaluating a franchise opportunity is essential to making a smart investment. By asking these key questions, you can uncover potential risks, understand the true costs, and ensure the franchise aligns with your goals. Taking the time to get the answers will set you up for long-term success and help you avoid costly mistakes.

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Designer sketching Wireframes
Unseen Studio, Unsplash

If you want to protect your investment in a franchise, don’t rely on verbal promises from the franchisor.

Why not? Because verbal promises are worthless if disputes arise. Verbal assurances from a franchisor representative might make you feel secure in the moment, but when challenges occur—like receiving less support than promised or discovering fees you didn’t expect to pay-you’ll find that those words hold no legal weight. Your dreams of owning a successful franchise could quickly turn into a nightmare of unmet expectations and financial losses.

Here’s what else might happen if you make this mistake:

  • You may lose legal grounds to demand what was promised.
  • You could end up paying unexpected costs.
  • Your relationship with the franchisor may sour, leading to a lack of support.
  • Your business might struggle without the resources you were promised.

I have seen many franchise litigation clients make the same mistake. Often franchisees will trust a franchisor’s verbal commitments about marketing support and territory protection. They believed that the franchisor’s word was enough. But when those promises weren’t fulfilled, those franchisees were left scrambling, with no legal recourse to demand what was verbally promised because of disclaimers and waivers in the franchise agreement. Many times their business suffered, their confidence was shaken, and they realized too late how crucial it is to get everything in writing.

Which is why I want to share this with you.

Instead, always ensure that all franchisor promises are included in a written addendum to the franchise agreement.

You should insist on detailed written documentation of every promise before signing the agreement. This way, you have a solid foundation to hold the franchisor accountable. You avoid unexpected expenses, receive the support you need, and ensure a smoother, more successful franchise operation.

  • You have peace of mind knowing everything is clearly outlined.
  • Your business relationship with the franchisor is more transparent.
  • You avoid unpleasant surprises and financial strain.
  • Your franchise is more likely to thrive.

This matters so much to me because I want to see you succeed where others have stumbled. Learning from their mistakes can save you from the same heartache and help you build a franchise that fulfills your aspirations.

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A Texas District Court ruling setting aside the FTC’s non-compete ban has sent ripples through the business and legal communities today. For many employers, this decision is undoubtedly seen as a reprieve from the potential upheaval the ban could have caused. However, the ruling also underscores the ongoing debate about the future of non-compete agreements in the U.S.

Impact of the Ruling

The court’s decision to set aside the FTC’s nationwide ban on non-compete clauses is significant. Non-competes have long been used by businesses to protect trade secrets and prevent the loss of key talent to competitors. By restricting the ability of employees to work for competitors, these agreements have helped companies safeguard their competitive edge. The Texas ruling, which sets aside the FTC’s sweeping ban, allows businesses to continue using non-competes depending upon state law. In Iowa, non-competes have been enforceable as long as they are drafted reasonably to protect the employer’s business, not unreasonably restrictive of the employee’s rights, and not prejudicial to the public interest.

However, this Texas ruling is likely not the final word on the matter. The FTC may appeal, and there is growing momentum, both in courts and legislatures, toward limiting or outright prohibiting non-compete agreements. The debate centers around balancing the need to protect business interests with ensuring that employees have the freedom to pursue their careers without undue restrictions.

The Importance of Legal Counsel

Given the uncertainty surrounding the future of non-competes, it’s more important than ever for businesses to consult with legal counsel. An appeal of the Texas ruling could change the legal landscape once again, and staying informed about the latest developments is crucial. Companies should review their use of non-compete agreements and consider alternative ways to protect their interests, such as confidentiality agreements.

In conclusion, while the Texas ruling offers temporary relief for businesses relying on non-competes, the broader trend suggests a shift away from enforcing these agreements. As the legal battle continues, proactive legal guidance will be essential to navigating this evolving area of law.

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Just a sudden attempt to express the concept of crime.
niu niu, Unsplash

I recently read an important blog post on the HR Law Talk Blog regarding what employers should be doing to comply with the FTC’s noncompete ban scheduled to take effect on September 4, 2024.

If you haven’t read it, here’s four reasons why you need to read it ASAP:

  1. Stay Ahead of the Curve: The FTC’s proposed ban on noncompetes could reshape the employer-employee relationship. Understanding these changes now equips you to adapt your business practices before they become law, ensuring you remain compliant and competitive.
  2. Protect Your Interests: Noncompetes have been a tool to safeguard proprietary information and client relationships. Knowing how to adjust your strategies in light of potential ban is crucial to protecting the core assets of your business.
  3. Mitigate Legal Risks: Ignorance of the law is not a defense. By staying informed about the FTC’s rule, you can proactively revise contracts and policies, avoiding costly legal disputes and potential penalties.
  4. Strengthen Employee Relations: Demonstrating that you are informed and prepared for the changes can boost employee trust. By addressing concerns about noncompetes, you show a commitment to fair and transparent employment practices, enhancing your reputation as an employer of choice.

Because HR Law Talk wrote such an informative and timely blog post, I wanted to give them props. Reading the post isn’t just about knowledge; it’s about taking action to secure your business’s future in a rapidly evolving legal landscape. If you need help under Iowa law, I encourage you to reach out to me or your legal counsel if you have any questions.

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Shanghai interchange
Denys Nevozhai, Unsplash

When purchasing a franchise, one of the most critical aspects to consider is the size and protection of the territory you will be operating in. Securing a territory that limits competition from other franchisees within the same brand can be the difference between a thriving business and a struggle for market share. This is particularly true in cities like Des Moines, Iowa, where the ease of transportation in the metropolitan area means that most people are only 10 to 15 minutes away from any given location.

Why Exclusive Territory Matters

An exclusive territory gives you the right to operate your franchise in a specific area without the risk of another franchisee from the same brand opening up shop nearby. This protection is crucial because it ensures that you won’t be directly competing with another franchisee for the same customer base. Without this protection, your business could suffer from market saturation, leading to decreased profits and potential conflicts with neighboring franchisees.

The Unique Case of Des Moines

In a city like Des Moines and its suburbs, the importance of exclusive territory becomes even more pronounced. Des Moines is a city where people are accustomed to driving, and most locations within the metro area are easily accessible by car within a short timeframe. Because of this, the geographic distance between two franchise locations might not be enough to prevent overlap in customer bases.

For example, if another franchisee opens a location just a few miles away, the convenience factor that might deter customers in larger cities from driving could be significantly reduced. In Des Moines, that short drive might not seem like a hassle at all, meaning you could end up competing for the same customers.

Negotiating for Exclusive Territory

When entering into a franchise agreement, it is essential to negotiate for an exclusive territory that adequately protects your business. Here’s how you can approach this negotiation:

  1. Understand the Franchisor’s Policy:
    Some franchisors have standard policies on territory size and exclusivity, while others may be more flexible. It’s crucial to understand what the franchisor typically offers and whether there is room for negotiation.
  2. Assess the Local Market:
    Conduct thorough research on the Des Moines metro area, including population density, traffic patterns, and the locations of other franchisees. Use this data to argue for a territory that prevents overlap and competition.
  3. Highlight the Unique Characteristics of the Des Moines Metro Area:
    During negotiations, emphasize the ease of transportation and the compact nature of Des Moines. Explain how the short travel times within the city increase the likelihood of customer overlap between nearby locations, making a larger or more exclusive territory necessary. Invite the franchisor here so they can see the ease at which people move about the metro area.
  4. Seek Legal Counsel:
    Work with a franchise lawyer who understands the intricacies of franchise agreements and can help you negotiate favorable terms. An experienced franchise lawyer can ensure that the terms of your exclusive territory are clearly defined and enforceable. And while you are at it, hire a franchise lawyer who has experience in the Des Moines metro market. I know a guy!

The Long-Term Benefits

Securing an exclusive territory not only protects your initial investment but also contributes to the long-term success and sustainability of your franchise location(s). By ensuring that your customer base is secure and not shared with another nearby franchise, you can maximize your revenue potential and establish a stronger presence in the market.

Conclusion

For franchisees in the Des Moines, Iowa metro area, negotiating for an exclusive territory is not just a smart business move—it is a necessity. The city’s ease of transportation means that without this protection, you could find yourself in direct competition with another franchisee just a few minutes away. By understanding the importance of territory, assessing the local market, and negotiating effectively, you can set your franchise up for success and ensure that you are not competing for the same slice of the pie.

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Ian Schneider, Unsplash

Starting a small business involves making crucial decisions, one of which is choosing the right legal structure. For an individual small business owner, a Single-Member Limited Liability Company (LLC) is an excellent option. This structure provides a blend of flexibility, simplicity, and protection that can be highly beneficial, especially for those venturing into business for the first time.

1. Limited Liability Protection

One of the most significant advantages of forming a Single-Member LLC is the limited liability protection it offers. As a business owner, you will want to protect personal assets—such as your home, car, and personal savings—from business debts and liabilities. This means that if your business faces a lawsuit or incurs debt, your personal assets are typically not at risk. This layer of protection can offer peace of mind, allowing you to focus on growing your business without the constant fear of personal financial ruin.

Why It’s Better Than a Sole Proprietorship:
In contrast, if you operate as a sole proprietorship, you and your business are legally considered the same entity. This means that if your business is sued or incurs debt, your personal assets are at risk. There is no legal separation between you and your business, which could expose you to significant financial liability. With a Single-Member LLC, however, this separation exists, offering a crucial safeguard that a sole proprietorship simply cannot provide. This makes a Single-Member LLC a far superior option, and in my opinion a no-brainer, for protecting your personal assets while running your business.

2. Simplified Tax Filing

A major benefit of a Single-Member LLC is its “pass-through” taxation feature. Unlike corporations or multi-member LLCs, which require as separate business tax return, a Single-Member LLC allows you to report your business income and expenses directly on your personal tax return, specifically on Schedule C of your Form 1040. This simplifies the tax filing process, as there’s no need to file a separate business tax return. It also means that any profits or losses from the business directly affect your personal income, which can lead to potential tax savings.

3. Operational Flexibility

A Single-Member LLC offers significant operational flexibility. You have the freedom to run your business without the stringent formalities required of corporations, such as holding annual meetings or maintaining detailed corporate minutes. You can manage your LLC without the need to create a board of directors or issue stock. This flexibility allows you to focus more on your business operations rather than getting bogged down in administrative tasks.

4. Credibility with Customers and Partners

Forming an LLC can also enhance the credibility of your business. Many customers, suppliers, and partners view the LLC designation as a sign of a more established and legitimate business. This perception can be beneficial when negotiating contracts, securing business deals, or simply attracting more clients. It signals that you take your business seriously and have taken steps to formalize your operations.

5. Potential for Future Growth

A Single-Member LLC also offers flexibility for future growth. Should your business expand and you decide to bring on additional members or partners, your LLC can easily convert to a Multi-Member LLC without needing to start from scratch. This adaptability makes the Single-Member LLC an excellent choice for small business owners who envision growth and expansion in the future.

Conclusion

In conclusion, forming a Single-Member LLC is a smart choice for an individual small business owner seeking limited liability protection, tax simplicity, and operational flexibility. It offers a practical and efficient way to run your business, with the added benefit of personal asset protection. Whether you’re just starting or looking to grow, a Single-Member LLC provides a solid foundation upon which to build your entrepreneurial dreams.

Wendy's in Sasazuka: Showcasing the recognizable Wendy's sign at their outlet in Sasazuka, located to the west of Shinjuku, Tokyo.
taro ohtani, Unsplash

Entering into a franchise agreement can be an exciting and lucrative venture for many aspiring business owners. However, the path to successful franchise ownership is fraught with potential pitfalls. – just like opening your own independent business. As a franchise lawyer, I’ve observed several common mistakes that franchisees make, which can lead to significant financial and operational challenges. Here are five of the biggest mistakes franchisees make and how to avoid them.

1. Inadequate Due Diligence

One of the most critical steps in the franchise process is conducting thorough due diligence. Many franchisees fail to investigate the franchise thoroughly, leading to uninformed decisions. Due diligence should include:

  • Researching the Franchisor: Investigate the franchisor’s business history, financial health, and reputation. Review the Franchise Disclosure Document (FDD) meticulously.
  • Speaking with Current and Former Franchisees: Gain insights into the day-to-day operations, profitability, and challenges from those who have experienced it firsthand. Be sure to talk with those franchisees in territories similar to yours.
  • Understanding the Market: Analyze the market demand, competition, and location specifics to ensure your franchise can thrive.

2. Underestimating Financial Requirements

Franchisees often misjudge the financial commitments required to start and sustain a franchise. Beyond the initial franchise fee, there are other significant expenses, such as:

  • Initial Investment: This includes costs for equipment, inventory, and leasehold improvements.
  • Ongoing Fees: Royalty fees, marketing fees, and other ongoing costs set forth in the franchise agreement.
  • Working Capital: Adequate funds to cover operating expenses until the franchise becomes profitable. This is incredibly important. You need more capital that just the initial franchise fee and investment. You need to be able to weather the start-up and down times.

Failing to account for these costs can lead to cash flow issues and potential business failure.

3. Neglecting the Franchise Agreement

The franchise agreement is a legally binding document that outlines the rights and obligations of both the franchisor and the franchisee. Unfortunately, many franchisees do not fully understand the terms before signing. Key areas to focus on include:

  • Territorial Rights: Understand the exclusivity of your territory and the franchisor’s rights to open other units nearby. Set yourself up with a territory that helps decrease potential competition from other franchisees moving forward.
  • Term and Renewal Conditions: Know the length of the franchise term and conditions for renewal.
  • Termination Clauses: Be aware of the circumstances under which the agreement can be terminated by either party.

Consulting with a franchise lawyer to review and explain the agreement is essential to avoid unfavorable terms.

4. Inadequate Training and Support Utilization

Franchisors typically offer training and ongoing support to help franchisees succeed. However, some franchisees do not fully utilize these resources, and let’s be honest, some franchisors don’t have comprehensive training programs. This can result in operational inefficiencies and missed growth opportunities. To maximize the benefits:

  • Attend Training Sessions: Ensure you and your key staff participate in all available training programs.
  • Leverage Support Services: Take advantage of marketing, operations, and technology support provided by the franchisor.
  • Seek Continuous Improvement: Regularly communicate with the franchisor and other franchisees to share best practices and stay updated on new developments.

5. Ignoring Local Marketing Efforts

While franchisors often manage national marketing campaigns, local marketing is often the franchisee’s responsibility. Neglecting local marketing efforts can hinder the growth and visibility of your franchise. To build a strong local presence:

  • Engage with the Community: Participate in local events, sponsor community activities, and build relationships with local businesses.
  • Utilize Social Media: Leverage social media platforms to connect with local customers and promote your franchise. It’s critical to work with a franchisor that will support these efforts.
  • Implement Local Promotions: Offer special deals and promotions to attract and retain customers in your area.

Conclusion

Avoiding these 5 common mistakes can significantly enhance the chances of success for franchisees. By conducting thorough due diligence, understanding financial requirements, meticulously reviewing the franchise agreement, utilizing training and support, and focusing on local marketing, franchisees can build a strong foundation for their business. As a franchise lawyer, I encourage prospective franchisees to seek professional legal advice to navigate these complexities and make informed decisions.