Articles » 3 Common Mistakes People Make When Opening a Franchise

Articles

3 Common Mistakes People Make When Opening a Franchise

Franchises are a way to set up a new business based on a successful business model. It allows you to expand your brand while letting franchisees handle some of the administrative bloat. You can hand pick franchise owners and they can learn everything about the business before they decide to sign up. However, there are many ways this business model can go wrong. Here are three common mistakes people make when franchising their business or opening a new one. We’ll also explain why these mistakes occur, why they’re mistakes in the first place, and how to avoid making them yourself.

Choosing the Wrong Business Entity

Choosing the right business entity is critical to your success. Whether you set up a limited liability corporation or a C-corporation, it affects everything from your legal liability to the taxes you’ll pay. The type of business entity you select also determines your rights as a business owner. It is better to seek legal advice and select the right business entity at the start than try to change it later.

Not Hiring a Legal Expert

Many of us know to seek legal advice when legal problems arise. However, they may try to seek advice from anyone they know with a law degree. Or they think that someone who has worked as a corporate attorney understands business well enough to answer their questions about contracts and labor law.

When you’re buying a franchise, you should only work with franchise attorneys. Firms like Larkin Hoffman, for instance, are specialized in franchise law. These are the people who understand franchising agreements inside and out. Furthermore, when you’re buying a franchise or crafting a franchise agreement, you need to work with an attorney who is familiar with the applicable state laws. A number of states have separate rules and regulations for franchises in their state. Franchise attorneys will ensure that all of the bases are covered, like intellectual property law.

There’s another reason to work with a legal expert, and that’s making certain you’re entering the franchising agreement fully informed. For example, you don’t want to make the mistake of letting someone enter a franchise agreement with you if they haven’t shared their litigation history or your contract doesn’t clearly list everyone’s obligations. This should be done by a professional so that your interests are protected. If you’re considering signing up for a franchise, consult with a franchise attorney to ensure that you understand the franchise disclosure document you’re about to sign inside and out.

Failing to Seek Help Until It Is Too Late

No one starts a franchise expecting to fail. Yet they can fail, even if you thought you had a good business plan. Maybe you didn’t earn enough money soon enough after opening to keep the doors open. Perhaps the location you chose was wrong. In other cases, the problem is the franchisor failing to help you. Talk to your franchise attorney about the obligations and restrictions spelled out in the Franchise Disclosure Agreement before you blame the franchisor.

In fact, if you fail to abide by the franchise disclosure document’s requirements, your franchise could be terminated. If you don’t like the terms of the agreement, consult with a franchise attorney at the very start to negotiate a better agreement.

Conclusion

We’ve shared the most common mistakes people make when setting up a franchise. Take steps now to avoid making these mistakes before you officially turn your business into a franchise and you’ll dramatically increase your odds of succeeding.