Finding the Best Advisors in Franchising
There is one common thread in many emails I receive from people who read my book Franchising for Dummies - they want recommendations for local lawyers or consultants to work with them either in starting a franchise system or for evaluating a franchise opportunity.
But franchise law primarily deals with how a franchisor is required to offer their opportunity, and there is little if anything in the law that impacts what that opportunity is or how the franchise relationship is structured – including the fees, rights, and obligations of the franchisor and franchisees.
Each Franchise Offering Is Unique
Many new to franchising mistakenly believe that most franchise agreements are uniform and that one agreement is going to be similar to another even in the same industry. That mistake is one reason many franchisors and franchisees run into significant problems later on. Franchising is significantly more about business issues than it is about the law, and you will need to evaluate different possibilities and make a host of decisions on the feasibility of franchising and the structure of the franchise system required to meet your goals long before you need to speak with a lawyer.
Spend an afternoon reading franchise offering documents for a few hamburger concepts - McDonald’s, Burger King, Wendy’s, Five Guys, Smashburger, Sonic, A&W. You'll find each has significantly different offerings including level of investment, profile of franchisees, classes of franchisees, initial fees, continuing fees, territorial rights, supply chains, sources of revenue, marketing requirements, training, headquarters, and field support, in term obligations, post-term obligations, length of agreement, renewal possibilities, and a hundred other things that make each of them unique and marketable against the others.
Each may also validate differently with their franchisees based on communications, relationship, unit profitability, training, headquarters and field support, the cost of goods, labor hours required, return on investment, etc.
Get a Qualified Lawyer Before Signing a Franchise Agreement
Equally important, when evaluating whether or not a particular franchise opportunity meets your needs, having a lawyer is essential before you sign the franchise agreement.
Buying a franchise without the assistance of a qualified franchise lawyer is the single biggest mistake you can make, and frequently leads to problems between the franchisor and the franchise later on. If you go it alone and the rights you expected to be in the franchise agreement are not there, the only person to blame is yourself.
Getting a Basic Understanding of Franchising
When you start to explore something as complex as franchising, there is a natural inclination to engage a lawyer or consultant to assist you before you do anything else. But before you engage any professional in working with you, educate yourself about the franchising model.
Even the most experienced expert becomes a much better advisor when their client has some knowledge of the subject under discussion. The client also is able to better participate in the engagement and is able to provide the needed direction to their outside advisor on the culture and other aspects of the business that will impact the planning process and, ultimately, whether or not the execution of the strategy will be successful.
For this reason MSA Worldwide begins every engagement with our emerging franchisor clients with several hours of classes and discussion on the basics of franchising and, of course, we also recommend that they read Franchising for Dummies.
Besides providing them with some knowledge about franchising, understanding the dynamics of franchising enables them to begin to think about their company in the context of being a franchisor. It also allows for the removal of many of the myths many people have about franchising that often impact their thinking and decision-making during the franchise development process. Before you engage outside experts to assist you, invest a little time and begin to learn all you can about franchising on your own.
Resources for Learning about Franchising
There is an abundance of books and magazines available, and the Internet is full of professional papers, useful articles, well thought-through presentations, and a ton of extremely good and factual information. Much of the material on the Internet is also free.
If you are looking to become a franchisee, download a copy of my workbook Making the Franchise Decision. This will provide you with an in-depth understanding of what is required in conducting a proper due diligence and is free at www.msaworldwide.com in the Resources section.
When looking for information on the Internet, many of the law firms and consulting firms, MSA Worldwide included post articles, presentations and industry news on their firm’s websites. A few have newsletters that you can subscribe to. You can learn a lot about franchising and the professionals who write the articles in this way.
The IFA (International Franchise Association) website is another excellent place to start. They are arguably the most pro-franchising site on the Internet, and their bias toward franchising is clearly projected. But much of the information is relatively unfiltered and is generally always reliable and verifiable. On the site is an abundance of research produced by the IFA Education Foundation, as well as courses on franchising. You will find information from franchisors, franchisees, and suppliers that are remarkably balanced for an industry trade association. Most of the information is free and available to non-members. The IFA also has conferences, programs, and meetings you can attend and on their calendar, they list others in franchising.
Finding a Knowledgeable Business Advisor
Once you have a basic understand of franchising, working with knowledgeable business advisors should be your next step. This is especially important if you are looking to become a franchisor because it will be the business determinations that you need to make that will drive the terms of your franchise offering. For the emerging franchisor, the lawyer becomes essential once the decision to franchise has been made and the terms of the franchise offering have been designed and developed by the management and their business advisors. At that point, your consultant will be able to provide you with recommendations for several lawyers to work with based on their reputation among their peers.
A Word of Caution on Franchise Brokers
If you are considering becoming a franchisee, be aware that most business advisors serving the franchisee community are franchise brokers. While many franchise brokers are extremely knowledgeable, it is important to remember that they make their principal living working for the franchisor, and selling you one of the franchises they represent is their goal.
It is not recommended that you rely on a franchise broker or their legal advisors as a replacement for your own legal counsel, any more than you would take advice from the seller’s attorney when buying a house. While brokers can be a source of good information, it’s important that you have your own independent legal advisor assist you in evaluating any franchise opportunity and to help you understand the terms of the franchise agreement you will be signing. As a prospective franchisee, working with a franchise lawyer is absolutely essential. This is not an area where you should try to save money - there is no way to over-emphasize the need for you to work with a qualified franchise lawyer who represents you.
Finding a Lawyer Experienced in Franchising
When looking for a lawyer to work with on a franchise-related matter, remember that all lawyers are not equally knowledgeable about franchising. In fact, most members of the bar really don't have enough working knowledge about franchise law and practices to be of much use to either an emerging franchisor or prospective franchisee and in reality can be quite dangerous to use. Given its importance in the US and the world economy, I am still surprised that franchise law is not a major subject widely taught in law school (only 10 or so law schools in the U.S. teach franchising). It’s something that most lawyers learn from experience. Locate a lawyer who is experienced in franchising, and never rely on a general practitioner.
While the trend is for franchise lawyers to work with both franchisors and franchisees, the vast majority still work only one side of the street; they represent either franchisors or franchisees, but not both. The vast majority of franchise lawyers are predominately franchisor-oriented. As with most members of the bar, franchise lawyers are also split between those that are principally litigators and those that are principally transactional-oriented.
- If you are planning on becoming a franchisor, the lawyer you want to work with is a transactional lawyer.
- If you are looking to become a franchisee, since the pool of legal counsel available to you is smaller and because of the type of services you are requiring, both transactional and litigation lawyers generally will be able to provide you with the advice you need. But experience is still the key here.
So, where do you find the best franchise lawyers? When selecting any professional, it is their reputation for performance that is important to you. Getting a recommendation from another professional you work with and trust is the strongest indication of the competence you can have when conducting your interviews. Ask your franchise consultant to recommend to you several law firms they have worked with whose work product they stand behind. At MSA we routinely work with many lawyers and generally provide our clients with two or three recommendations that we believe meet our client’s overall franchise legal needs. Most franchisors will continue to retain their outside general lawyer for general corporate and tax matters and will use the franchise law firm only for franchise-related issues. Other great sources of advice may be your own outside legal counsel, possibly even your accountant.
Qualifications for Franchise Lawyers
The lawyers you interview should be members of the American Bar Association Forum on Franchising. This is a practice segment of the ABA; almost all serious franchise lawyers and most franchise business advisors, even if they are not lawyers, are members and regularly attend their programs. Since the forum is peer-driven, the lawyers and consultants you interview should routinely be selected by their peers to speak at the forum’s annual meeting and to regularly contribute to its publications - indicating that they are routinely and regularly recognized as an expert by their peers. Many will also be members of the International Franchise Association’s Supplier Forum and, as with the ABA, the better practitioners will routinely be asked to speak at the IFA’s legal symposium and other programs.
Because some franchisee-oriented lawyers believe the IFA is more supportive of their franchisor members than their franchise members, quite a number of the better franchise lawyers are unfortunately not members of the IFA. It is a sentiment that I understand based on my many years of experience in the IFA, but I don't believe it is reflective of the organization today. A good source for locating franchisee-oriented law firms is the Mainly Franchisee section of Chambers USA. You only make this list through peer review and based on a review of the firms they list, I think they do a good job.
Don’t be overly influenced by the prominence of an advertisement in a directory or in a magazine. You really need to look for proven experience. Ask for references from their existing and past clients, and check them out. Examine their specific practice experience, usually described on the lawyer’s own website. Also, ask your current lawyer to check the information found on the lawyer in a respected published directory such as Martindale-Hubbell.
You Do Get What You Pay For
It is foolish to pick any professional based on their hourly rates. Lawyers and other professionals’ fees are usually based on their experience and their reputation. All professionals are not equal, and saving money by picking someone who is not best of the breed can be much more expensive later on. Besides, with experience comes speed. Get an estimate of the total cost of the engagement or the services you are requesting, not just what they will bill you by the hour. The hourly billing rate is really not important. Have your general counsel work with you in reviewing the engagement letter of your franchise lawyer and consultant before you sign it.
In most cases, the geographic location of the lawyer and consultant is immaterial. Most franchise lawyers, especially those that work with franchisees, perform much of their work with clients over the phone or electronically. All qualified franchise lawyers and consultants are fully capable of working with you; your goal is not to select the closest professional, but the best professional. The “best” does not mean the most expensive, nor does it mean the most convenient geographically.
Finally, if you perform the investigation I recommend above and when contacting a franchise lawyer discover they don't provide the services you require, ask them for a recommendation. The ranks of great franchise lawyers and business advisors are relatively small. While we may hold different philosophical views on the issues, we know the professionals on the other side who we respect, and many of them are also friends.
There are many marginally experienced ex-franchise salespeople and others offering their services as independent consultants. But take your time and invest in the best. Selecting your franchise lawyer and consultant is one area where you cannot afford to make a mistake.