On the surface, franchising can look like a great way to get into business without starting from scratch. The brand’s already known and the systems are in place. But the reality isn’t always so straightforward.
Without proper legal advice and a bit of digging, what looks like a promising business venture can turn into a costly mistake. Jump in too quickly and you could find yourself out of pocket and on your own when things don’t go to plan.
It’s frightening how quickly a franchise agreement can unravel when expectations aren’t met and legal protections aren’t in place. Unfortunately, small business owners can find themselves isolated, financially exposed, and without the backup they were promised.
When Promises Falls Short
Corban Revell lawyer Krishnil Singh has seen the fallout firsthand: “Franchise opportunities can be appealing, with an established brand, set systems, and the promise of support. But we often see small business owners run into trouble with hidden costs, restrictive clauses, or limited flexibility down the line.”
“In some cases, franchisees are encouraged to invest significant capital. This can sometimes mean tens of thousands put into vehicles, marketing, or equipment before they’ve had the chance to properly evaluate the business. Promises of national marketing campaigns or guaranteed shelf space can fall flat. And without legal safeguards, it’s the franchisee who bears the risk.”
So what should you do before signing a franchise agreement? Krishnil explains,“My advice is simple. Get independent legal advice before signing anything. Even a franchise that looks like a golden opportunity can come with strings attached if you don’t do your homework.”
Here’s an overview of what we recommend for anyone considering a franchise arrangement:
1. Talk to your lawyer before signing anything
Don’t rely on the franchisor’s word or their lawyer’s documents. Your lawyer should be working solely in your interest and will be able to highlight potential risks and red flags in the agreement.
2. Understand what you’re really paying for
Some franchisees are asked to pay high upfront fees, contribute to marketing, or finance specific equipment. It’s important to understand exactly where your money is going and whether the value stacks up.
3. Read the fine print on support and training
What kind of support are you actually getting? How often is training provided? If these aren’t clearly spelled out in the contract, there’s no guarantee you’ll get what’s been promised.
4. Watch out for termination and exclusivity clauses
We’ve seen agreements where franchisees can be removed from the business with little notice, sometimes under vague conditions like ‘bringing the brand into disrepute’. Check whether you have real protection if things go wrong.
5. Do your due diligence on the people involved
Research the background of the franchisor. Have they been involved in previous failed ventures? Do they have a history of forming and dissolving companies? This information can be incredibly telling and it’s usually public.
6. Talk to other franchisees (past and present)
If a franchisor discourages contact between franchisees, consider it a red flag. Talking to others who’ve been through the process can reveal a lot about what you’re signing up for.
Franchising can be a legitimate and successful path into business ownership. But it’s not risk-free, especially when the power imbalance between franchisor and franchisee isn’t checked by good legal advice.
Taking the time to understand what you’re signing and having someone in your corner can make all the difference.
Need advice?
If you’ve got questions or you’re not quite sure what to look out for in a franchise agreement, or any other kind of business contract, feel free to get in touch with Krishnil Singh or Frank Chan.