Is a franchise a good idea for businesses in Maryland?
Are you interested in purchasing a franchise? Purchasing a franchise offers several benefits, such as name recognition and an established reputation. However, deciding whether a franchise is a good investment for you can be complicated. Below are seven considerations that you may want to discuss further with a Maryland business attorney before entering a franchise agreement.
1. You Can Negotiate Contract Terms
The franchisor may tell you that you cannot negotiate the termsof the franchise agreement. However, many franchisors are willing to negotiate, especially if they want you to open a new location for the franchise. Negotiating, whether it is successful or not, is a good way to evaluate how the franchisor will treat you in the future.
If the franchisor is aggressive, difficult, dominating, or unyielding, it is a very good indication that how you may be treatedafter you have signed a binding contract.
2. Be Cautious of Unnecessary and Unlimited Personal Guaranty and Non-Compete Agreements
In many cases, a franchisor requires the franchisee to sign a personal guaranty and a non-competeagreement. However, these agreements should be fair and reasonable. In addition, if you have several investors that will have nothing to do with the business and are not on the franchise agreement, your investors should not blindly sign guarantees and agreements without speaking with a Maryland businessattorney.
3. You Need to Do Your Research
Do not rely on the claims of the franchisor about the marketability of the product or service. You need to research the market to determine if you are making a wise investment. A Maryland business attorney can help you research the service or product to determine if the service or product is in demand within your market area.
4. Required Start-Up Fees
Carefully review the fees charged by the franchisor, but do not neglect to include other fees that you may incur opening a franchise. For instance, most franchisors charge a non-refundable franchise fee in addition to continuing royalty payments. Some royalty payments are based on gross income; however, you could be required to pay royalty payments even if you do not earn a profit for the period.
In addition, you need to consider the costs related to renting or leasing your location, leasing or purchasing equipment, employment costs, and purchasing inventory. Furthermore, you might be required to pay the franchisor for corporate advertising in addition to your cost for local advertising.
Fees and costs related to your opening could put your company in substantial debt.
5. It Is Important to Choose a Business Structure
When choosing a legal entity for your business, you want to consider such legal implications such as taxation, cost, and operating requirements. Many people who purchase a franchise remain sole proprietors, which can result in substantial personal liability for business debts and legal responsibility.
6. Franchisor Controls
The franchisor often retains a significant level of control over the appearance and design to ensure products and services are uniform throughout the franchise. In some cases, you could be required to make periodic changes for seasonal promotions. You might be required to purchase specific signs and other marketing materials from the franchisor instead of purchasing these items from a local supplier at a lower cost. Some franchises have restrictions on business operations and sales area.
7. Terms for Termination and Renewals
Terminating a franchise could be extremely expensive. If you fail to comply with the terms of the franchise agreement, the franchisor could terminate the agreement, which could also be costly. Also, keep in mind that at the end of the franchise term, the franchisor may not renew your franchise or it may impose new fees and increase royalty payments.
Get Trusted Advice From A Maryland Business Attorney
Opening a franchise is exciting. Contact Thienel Law today to discuss the pros and cons of the franchise to protect your investment. Maryland business attorney Steve Thienel is dedicated to assisting clients in Maryland, Virginia, and throughout the DC Metro area.