Mistakes to Avoid When Buying a Franchise

Joel Libava of the always informative Franchise King Blog offers prospective franchisees with critical information in his post "Buying a Franchise? Here are 4 Don'ts". Reflecting on mistakes that should be avoided, Mr. Libava offers the following advice:

"Here are four [mistakes] that the not-so successful [franchisees] will do that you can learn from;

They'll choose the franchise opportunity that seems to be getting the most press. In other words, it's a hot franchise.
They will buy a franchise that is aligned with their hobby, or passion.
They buy what they feel is the perfect franchise, because they can't find a job.
They will forget asking really, really, important questions."

If you are considering the purchase of a franchise read Mr. Libava's post and his detailed articles on this topic.  One of the many issues addressed by Mr. Libava is the suitability of replacing a lost job with a franchise.  In our current economic climate this is an issue of extreme relevance and Mr. Libava offers some great insights.  In my article "Can (or Even Should) you Buy A Business or Franchise to Replace a Lost Job" I discuss some of the factors that you should be considering and discussing with your family members before making a leap into the world of small business and franchise ownership.

Finding the Right Franchise

One of the most difficult and critical tasks for prospective franchisees is finding the right franchise opportunity.  This is not an easy task and requires an analysis and evaluation of many factors.  While no franchise opportunity is "perfect", over at the excellent Franchise King Blog franchise consultant Joel Libava offers franchisees some great insight into the qualities of the "perfect franchise".  According to Mr. Libava the "perfect franchise" should offer the following:

• Major Brand Power;
• Constant Innovation from Management;
• Uniformity;
• Solid Training Program;
• Extremely profitable franchisees; and 
• An engaged [utilization] of Social Media

For the prospective franchisee, when evaluating a franchise opportunity give serious and thorough consideration to these factors. Ask questions and make sure that your evaluation goes beyond (well beyond) the franchisors sales literature.  For some additional information on selecting a franchise and "franchise due diligence" definitely check out the Franchise King Blog and the "Franchisee Due Diligence" section of the New York Franchise Law Blog

Avoiding Fraud When Buying a Franchise

If you are considering the purchase of a franchise chances are you have conducted a number of web searches, filled out some web contact forms, made calls and have spoken with franchise sales representatives.  Along with the many rewards and opportunities presented with entrepreneurship and "owning your own business" comes significant risk.  Accordingly, before signing a franchise agreement or paying any franchise fee a detailed due diligence evaluation is critical.  As I have mentioned in many of my posts and articles one of the most critical "due diligence" tasks includes the simple (but critically important) step of contacting and speaking with existing franchisees.

This afternoon I came across a website maintained by a "former" franchisee of a "Java's Brewin" franchise.  While I am not familiar with Java's Brewin, the former franchisee raises troubling allegations of fraud by the franchisor and the franchisor's principal.  While the vast majority of franchisors are honest and reputable, be aware that, sometimes, the franchise opportunity presented to you may be vastly different from what it appears to be , i.e., the factual information presented to you (to induce you to buy a franchise) may be inaccurate or the product of fraud.

Take a look at some of the comments by the former Java's Brewin franchisee and understand that when buying a franchise, take your time, consult with an experienced franchise lawyer, contact existing franchisees and leave no stone unturned.

Selecting a Franchise based on a "Discounted Franchise Fee" is a Big Mistake

In the current economic climate, without question, franchisors have been more willing to compromise and negotiate the terms of the franchise agreement and the agreed upon fees to be paid.  In particular, I am aware of franchisors who have "discounted" and reduced their franchise fee as an inducement for buying a franchise.  Likewise I have reviewed alleged "articles" and blog posts from attorneys who mention that "reduced franchise fees" may be a reason why now is a good time to invest in a franchise.

While now is the time to negotiate a better agreement with prospective franchisors, if you are investing in a franchise because you could get "a good deal on the franchise fee" you are making a big mistake. Franchise fees are designed to compensate a franchisor for the license and rights that it is granting and to cover the costs of training and assisting new franchisees.  If a franchisor is "discounting its franchise fee" you should be questioning "why" and how these discounts may pressure the franchisor to take shortcuts in training and supporting franchisees.  

Choosing between franchisors based on whether or not you get a discounted fee can be a big mistake that may cost you much more in the future.  While discounts sound good, select a franchise based on fundamentals such as the strength of the franchisor's trademarks, business systems and opportunity for future success. 

Buying and Operating a Franchise in New Jersey: The New Jersey Franchise Practices Act

If you operate a franchise in the State of New Jersey or are considering the purchase of a franchise in New Jersey the New Jersey Franchise Practices Act (NJFPA) affords you additional rights that you might not be aware of.  The New Jersey Franchise Practices act was established to provide supplemental rights to franchisees in situations involving the termination and sale of their franchise.

In particular, among the various protections afforded to new Jersey franchisees, the NJFPA restricts a franchisors ability to terminate a franchise relationship.  Irrespective of the contractual terms of the franchise agreement, in the State of New Jersey a franchise relationship may not be terminated unless:

•  (a) it is for "good cause" - such as a franchisees substantial failure to perform its contractual obligations; and
• (b) the franchisee is provided with at least 60 days prior notice by the franchisor of the franchisor's intent to terminate the franchise relationship or refuse the renewal of such relationship.  Said notice must also set forth the reasons for the franchisor's decision.