General Business and Finance Blog

Evaluating franchise attorneys and evaluating franchise consultants can seem a daunting task. But the firm a company selects to assist its entry into franchising, refine existing franchise efforts or make franchise opportunity investment decisions will have profound consequences. While asking for a list of references is one approach (and when is anyone ever dumb enough to provide a bad reference?) there are more objective criteria that are not dependent on selectively disseminated information.

By addressing the nine Franchise Questions, topics and subcategories of information discussed below, you will eliminate virtually 95% of the individuals or firms you are considering. Then efforts can concentrate on evaluating the 5% cream of the crop (especially franchise attorneys) that truly merit consideration:

A. FRANCHISE EXPERT:
The #1 factor in evaluating so-called expertise – are the principals really franchise experts? There are objective criteria to determine this:

(1) Have they qualified and been allowed to testify as a franchise expert in court and arbitration proceedings? Being involved as a franchise expert in the franchise litigation process gives a sensitivity and radar for detecting and avoiding future franchise problems.

(2) How many books on franchising have been written by the principals?

(3) How many franchise articles have been published in journals or magazines?

(4) What is their franchise-related teaching experience? (see topics E and F below)

(5) What is their depth of experience in the franchise industry? (see next topic below)

B. EXPERIENCE IN THE FRANCHISE INDUSTRY:
(1) Length of time the firm has operated exclusively in the franchise industry?

(2) Experience on both sides of the franchise fence – working with franchise companies (franchisors) as well as with individual investors (franchisees) who have purchased a franchise?

(3) Past experience principals have owning and operating a franchised business? This factor is absolutely critical. If the principals have owned and operated a franchise, they bring a unique perspective and radar for avoiding future franchise relationship problems from disgruntled franchise owners.

C. COMPREHENSIVE TRAINING & ONGOING SERVICES; CONTROL SYSTEMS:
(1) Can (and will) the firm train your personnel to operate and manage your new franchise company? Remember, you’re entering an entirely different business, one requiring new skills and abilities. If this topic is not addressed in detail, you might as well earmark the franchise fees received when you sell franchises for a future franchise litigation war chest;

(2) Will the firm help you review and update operational (franchise operations manual) and legal documentation (franchise offering circular) on an ongoing basis?

(3) Has the firm developed, and will they help you put into place, franchise marketing, sales control and legal compliance programs during the critical implementation (start-up) phase of your franchise program?

The existence of these programs is essential to ensure only the cream of franchise applicants are allowed to enter the network, and to create a series of documented files should a dispute arise in the future. Most of the legal risk in franchising occurs during the franchise marketing cycle when franchises are sold. If your company’s done a good job here with these programs, then you’ve eliminated most of the risk.

D. LEGAL: FRANCHISE ATTORNEY
(1) Is the law practice devoted exclusively to franchise law?

(2) Total number of franchise disclosure documents (formerly called franchise offering circulars) drafted and reviewed?

(3) Experience filing franchise registrations and working with state examiners in all 14-plus franchise registration states?

(4) Experience represeting franchise companies as well as persons buying a franchise? Knowing both sides of the fence is a tremendous asset.

E. ACADEMIC: UNIVERSITY & COLLEGE
Experience teaching franchise courses at graduate and undergraduate university levels?

F. ACADEMIC: PROFESSIONAL
Experience teaching franchise courses to franchise attorneys and general practice attorneys?

G. BLEND OF BUSINESS & LEGAL SKILLS:
Specialist franchise attorneys and law firms produce tight legal agreements (sometimes overly so leading to future franchise relationship problems) and usually adequate franchise offering circulars. Setting aside the overly tight contract issue, the problem is most franchise attorneys – franchise lawyers are not capable of making sound, strategic business decisions and providing practical, ongoing advice. Some franchise consultants, on the other hand, have good business sense, but lack the requisite legal skills. Questions:

(1) Does the firm have the proper blend of business savvy and in-house franchise legal expertise? It’s always a big plus if the franchise attorney also has an MBA. You can do a Google search with these twin attributes (franchise attorney MBA) and narrow the field considerably.

(2) Can the firm produce good legal documentation (franchise disclosure documents) and help you edit (or create) consistent operational documents (such as the franchise operations manual, training program, etc.) If your franchise agreement says “x” but your franchise operations manual or advertising materials say “y” about the same issue, be prepared to pay hefty franchise litigation fees and deal with franchise litigation attorneys in the future.

(3)Can the firm provide competent and practical ongoing advice in critical areas like effective franchise marketing, media decisions, interviewing franchise buyers, adopting the best franchise organizational structure, implementing a franchise advisory council, etc? Mistakes made in these areas can easily cost the franchise company tens, if not hundreds of thousands of dollars.

H. CONTRACT FAIRNESS:
Does the firm give you an option of choosing between:
(a) an hourly rate and
(b) a flat contract amount, where you don’t have to worry about accumulated hours and an unknown total amount?

I. RED FLAGS – BEWARE OF ANY OF THE FOLLOWING:

• Combination teams where one entity does one part of the project and another the other part. For example, a consulting firm does planning, and operational documentation, while an attorney “they know very well” writes the legal documentation.

• Or, a variant of the above, the company in the “fine print” of its contract, requires your attorney (who you obviously have to pay) to review and approve everything they do because the company (it says) is not rendering legal advice. Actually, by providing documents that affect legal rights, they are rendering legal advice, but in an illegal manner. It’s called the unauthorized practice of law. You end up paying two attorneys – yours and theirs. Besides the expense, it sets you up for future franchise problems. Their attorney represents who? The franchise packaging group, of course, and definitely not you. He or she is typically a recent law school graduate who hasn’t figured out what they’re doing is illegal and could cause them to lose their license to practice law. Besides that, they represent the franchise consulting group, whose interest is to churn as many franchise packages per year as possible. You end up with a bad franchise disclosure document and sloppy franchise operations manuals. To save time, the franchise agreement gets watered down so it’s easier to push through some franchise registration states. Some of the “t’s” may be crossed and some of the “i’s” dotted, but not most of them. The end product are documents that set you up for future franchise litigation difficulties.

• Firms that advise you to franchise your business, and they’ve never seen your business! You’d be surprised how often this happens.

• Firms that say they’ll write your franchise operations manual for you. How someone, who knows absolutely nothing about your business, could ever come close to anything but a mediocre product at best, is a frightening thought. The use of boilerplate manuals produced by consulting groups is yet another future litigation time bomb. You are the true expert in your business. With competent guidance and editing, you’ll be able to produce a professional and workable operations manuals, if you don’t have these already.

• Pricing quotes that seem exceedingly high or low (especially “do-it-yourself” franchise kits).

• If you are buying a franchise, BEWARE of any attorney recommended by the franchise company. Even worse, beware of franchise companies who say you don’t need to use an attorney. There are a couple of these online.

• Firms (or individuals) that have EVER been sued for fraud, misrepresentation, the unauthorized practice of law or violating any franchise law. DON’T FORGET TO ASK THIS CRITICAL QUESTION!!

©1990-2008, Kevin B. Murphy, B.S., M.B.A., J.D. – all rights reserved

For more informaton, consult the Franchise Foundations website.

Business insurance – what is it?

Business insurance is insurance that is intended to protect a business rather than the needs of an individual. There are many different types of business insurance available today but which one is right for you and your business? And what does it all mean? Here are some explanations to some of the legal terms used:

Negligence – means failing in your ‘duty of care’ to your client, this can include giving incorrect advice or making a mistake.

Intellectual property – infringing copyrights, trademarks or broadcasting rights this includes passing your product off as someone else’s or imitation.

Professional indemnity business insurance – this insurance protects you for sums you have to pay as compensation to your clients because of problems with your work.

What can you insure your business premises against?

Your buildings and / or contents can be insured against:

• Fire • Earthquake • Aircraft • Riot and malicious damage • Storm • Flood • Escape of water • Impact • Subsidence • Theft involving forcible and violent entry or exit • Other damage of an accidental nature

Business Interruption Insurance – what is it?

Business Interruption Insurance covers Loss of Trading Profit due to interruption caused by an insured event for a selected indemnity period, usually minimum 12 months.

What information do I need to obtain quote for business insurance?

You will be required to give some or all of the following information in order to obtain a quotation:

• your profession or industry• the level of cover you’d like • your annual turnover, annual gross income, annual fee income – if the business is just starting up your estimated first year’s revenue • your business name, a contact name and a valid email address   • your business trading address • answer a few questions about your business activities and previous claims history • the date you want cover to begin • your bank details

More Small Business questions please visit : Small-business-FAQ.com

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Because his money is involved, a prospective franchisee must be extremely careful in scrutinizing franchise offers. He should have a ready set of questions that the franchisor must be able to answer convincingly and show basis for his replies. Some of the important questions to ask a franchisor are:
How long has the franchisor been in the business? How many franchises are there at present? How many have failed? The answers to these questions will give the franchisee an overview of the business and its present franchise network.
Specifically, what will the franchisee get from paying the franchise fee? The franchise fee is usually a large sum of money paid to the franchisor once the agreement is signed. Therefore, it is important to know the advantages that the franchisee will be getting in return.
How intensive and effective are the initial and continuing training programs of the company for opening and running the franchise unit? The quality of the training programs of the company for start-up operations and running the business smoothly will determine the ease or difficulty with which the franchisee will run his unit.
What support services can the franchisee expect from the company on an on-going basis in terms of helping him deal with problems that may crop up in the course of the business? Continuing support from the franchisor is essential for the unit to run as projected. The franchisor must be able to enumerate in detail the support services that the company will provide in a variety of scenarios wherein the franchisee is confronted by different problems relative to the business. These problems may concern labour, customer complaints, equipment breakdown, and stock shortage.
Is the central management transparent in the appropriation of pooled funds for advertising and promotions? Did the past marketing programs of the company have a positive effect on sales? Part of the unit’s revenues is paid to the franchisor for the company’s advertising and promotions, therefore, the franchisee must know how well the company handles this fund and if its past marketing programs helped boost sales for its franchisees.
Is there a guarantee from the franchisor that the quality of the products and services offered by suppliers through him will be consistent and delivered promptly? The reliability of suppliers will be a big factor in the successful operation of the business. Hence, it is important that the franchisor is willing to guarantee the dependability of his suppliers and the quality of their products and services.
How long will it take the franchisee to recoup his investment? Naturally, every franchisee is very keen on knowing the company’s projection on this matter. The franchisor’s estimate must be supported by documents giving credence to his projection. However, it would be wise for the franchisee not to merely take the franchisor’s word for it but to research on the matter with other franchisees.
How well has the company studied the marketplace in terms of the ideal number of franchises in a given area to ensure the success of each? Is there a guarantee that the company-owned unit will not compete with the franchises? If it does, what will the company do? There are instances wherein the mother unit directly or indirectly competes with its franchise perhaps due to lack of a proper market study. In any such case, the company must be prepared with a viable solution that will be beneficial to both parties.
How receptive is the company to the idea of adapting its products and systems to the culture and preferences of the market in a given location? If the franchisee is considering a business site wherein the culture and preferences of the people are markedly different from that where the mother unit and other franchises are located, it would be detrimental to the success of the franchise if the company will persist in strictly adhering to its original product line.
A franchisee must carefully list the questions before arriving at the final decision. The aforementioned questions are only some of the most basic among the crucial questions that a sensible franchisee must ask. The manner by which the franchisor answers them can help determine the level of his sincerity. In addition to asking the franchisor, the franchisee will be able gather valuable insight into the actual state of the franchise from the other franchisees themselves. More often than not, they are more than willing to share their problems, frustrations, and advice. Asking the right questions will certainly help the prospect make the right decision

Evaluating franchise attorneys and evaluating franchise consultants can seem a daunting task. But the firm a company selects to assist its entry into franchising, refine existing franchise efforts or make franchise opportunity investment decisions will have profound consequences. While asking for a list of references is one approach (and when is anyone ever dumb enough to provide a bad reference?) there are more objective criteria that are not dependent on selectively disseminated information.

By addressing the nine Franchise Questions, topics and subcategories of information discussed below, you will eliminate virtually 95% of the individuals or firms you are considering. Then efforts can concentrate on evaluating the 5% cream of the crop (especially franchise attorneys) that truly merit consideration:

A. FRANCHISE EXPERT: The #1 factor in evaluating so-called expertise – are the principals really franchise experts? There are objective criteria to determine this:

(1) Have they qualified and been allowed to testify as a franchise expert in court and arbitration proceedings? Being involved as a franchise expert in the franchise litigation process gives a sensitivity and radar for detecting and avoiding future franchise problems.

(2) How many books on franchising have been written by the principals?

(3) How many franchise articles have been published in journals or magazines?

(4) What is their franchise-related teaching experience? (see topics E and F below)

(5) What is their depth of experience in the franchise industry? (see next topic below)

B. EXPERIENCE IN THE FRANCHISE INDUSTRY: (1) Length of time the firm has operated exclusively in the franchise industry?

(2) Experience on both sides of the franchise fence – working with franchise companies (franchisors) as well as with individual investors (franchisees) who have purchased a franchise?

(3) Past experience principals have owning and operating a franchised business? This factor is absolutely critical. If the principals have owned and operated a franchise, they bring a unique perspective and radar for avoiding future franchise relationship problems from disgruntled franchise owners.

C. COMPREHENSIVE TRAINING & ONGOING SERVICES; CONTROL SYSTEMS: (1) Can (and will) the firm train your personnel to operate and manage your new franchise company? Remember, you’re entering an entirely different business, one requiring new skills and abilities. If this topic is not addressed in detail, you might as well earmark the franchise fees received when you sell franchises for a future franchise litigation war chest;

(2) Will the firm help you review and update operational (franchise operations manual) and legal documentation (franchise offering circular) on an ongoing basis?

(3) Has the firm developed, and will they help you put into place, franchise marketing, sales control and legal compliance programs during the critical implementation (start-up) phase of your franchise program?

The existence of these programs is essential to ensure only the cream of franchise applicants are allowed to enter the network, and to create a series of documented files should a dispute arise in the future. Most of the legal risk in franchising occurs during the franchise marketing cycle when franchises are sold. If your company’s done a good job here with these programs, then you’ve eliminated most of the risk.

D. LEGAL: FRANCHISE ATTORNEY (1) Is the law practice devoted exclusively to franchise law?

(2) Total number of franchise disclosure documents (formerly called franchise offering circulars) drafted and reviewed?

(3) Experience filing franchise registrations and working with state examiners in all 14-plus franchise registration states?

(4) Experience represeting franchise companies as well as persons buying a franchise? Knowing both sides of the fence is a tremendous asset.

E. ACADEMIC: UNIVERSITY & COLLEGE Experience teaching franchise courses at graduate and undergraduate university levels?

F. ACADEMIC: PROFESSIONAL Experience teaching franchise courses to franchise attorneys and general practice attorneys?

G. BLEND OF BUSINESS & LEGAL SKILLS: Specialist franchise attorneys and law firms produce tight legal agreements (sometimes overly so leading to future franchise relationship problems) and usually adequate franchise offering circulars. Setting aside the overly tight contract issue, the problem is most franchise attorneys – franchise lawyers are not capable of making sound, strategic business decisions and providing practical, ongoing advice. Some franchise consultants, on the other hand, have good business sense, but lack the requisite legal skills. Questions:

(1) Does the firm have the proper blend of business savvy and in-house franchise legal expertise? It’s always a big plus if the franchise attorney also has an MBA. You can do a Google search with these twin attributes (franchise attorney MBA) and narrow the field considerably.

(2) Can the firm produce good legal documentation (franchise disclosure documents) and help you edit (or create) consistent operational documents (such as the franchise operations manual, training program, etc.) If your franchise agreement says “x” but your franchise operations manual or advertising materials say “y” about the same issue, be prepared to pay hefty franchise litigation fees and deal with franchise litigation attorneys in the future.

(3)Can the firm provide competent and practical ongoing advice in critical areas like effective franchise marketing, media decisions, interviewing franchise buyers, adopting the best franchise organizational structure, implementing a franchise advisory council, etc? Mistakes made in these areas can easily cost the franchise company tens, if not hundreds of thousands of dollars.

H. CONTRACT FAIRNESS: Does the firm give you an option of choosing between: (a) an hourly rate and (b) a flat contract amount, where you don’t have to worry about accumulated hours and an unknown total amount?

I. RED FLAGS – BEWARE OF ANY OF THE FOLLOWING:

• Combination teams where one entity does one part of the project and another the other part. For example, a consulting firm does planning, and operational documentation, while an attorney “they know very well” writes the legal documentation.

• Or, a variant of the above, the company in the “fine print” of its contract, requires your attorney (who you obviously have to pay) to review and approve everything they do because the company (it says) is not rendering legal advice. Actually, by providing documents that affect legal rights, they are rendering legal advice, but in an illegal manner. It’s called the unauthorized practice of law. You end up paying two attorneys – yours and theirs. Besides the expense, it sets you up for future franchise problems. Their attorney represents who? The franchise packaging group, of course, and definitely not you. He or she is typically a recent law school graduate who hasn’t figured out what they’re doing is illegal and could cause them to lose their license to practice law. Besides that, they represent the franchise consulting group, whose interest is to churn as many franchise packages per year as possible. You end up with a bad franchise disclosure document and sloppy franchise operations manuals. To save time, the franchise agreement gets watered down so it’s easier to push through some franchise registration states. Some of the “t’s” may be crossed and some of the “i’s” dotted, but not most of them. The end product are documents that set you up for future franchise litigation difficulties.

• Firms that advise you to franchise your business, and they’ve never seen your business! You’d be surprised how often this happens.

• Firms that say they’ll write your franchise operations manual for you. How someone, who knows absolutely nothing about your business, could ever come close to anything but a mediocre product at best, is a frightening thought. The use of boilerplate manuals produced by consulting groups is yet another future litigation time bomb. You are the true expert in your business. With competent guidance and editing, you’ll be able to produce a professional and workable operations manuals, if you don’t have these already.

• Pricing quotes that seem exceedingly high or low (especially “do-it-yourself” franchise kits).

• If you are buying a franchise, BEWARE of any attorney recommended by the franchise company. Even worse, beware of franchise companies who say you don’t need to use an attorney. There are a couple of these online.

• Firms (or individuals) that have EVER been sued for fraud, misrepresentation, the unauthorized practice of law or violating any franchise law. DON’T FORGET TO ASK THIS CRITICAL QUESTION!!

©1990-2008, Kevin B. Murphy, B.S., M.B.A., J.D. – all rights reserved

For more informaton, consult the Franchise Foundations website.