Comprehensive Franchise Representation

At the office of Daniel S. Willard, P.C., we provide representation to franchisees and potential franchisees regarding due diligence investigations (see below), franchise operations and in negotiations and litigation with the franchisor, and negotiation with a landlord to get you retail space in Maryland and D.C.

Evaluating A Franchise: Do Your "Due Diligence"

Here are some common places to start in evaluating a franchise:

  • Franchise disclosure documents: Franchisors are required by federal law and Maryland law to give you a copy of their franchise disclosure document (FDD).Generally, they are supposed to give you their franchise disclosure document a specified time before you pay them anything or sign anything. That is for a reason. Take this time to go get an attorney. If you do not get a written notice from them telling you how many days you have, run to get an attorney. The franchise disclosure document contains important required disclosures that, to the extent true, may help you evaluate the franchise. Read more from the Federal Trade Commission (FTC) about franchise disclosure documents here.
  • Franchise agreement: The franchise agreement is the contract between the company with the brand (the franchisor) and you (the franchisee). Compare the franchise agreement to the franchise disclosure document. This franchise agreement, if signed, may mean the success or failure of your business and personal fortune, so study it thoroughly and understand it all. If your eyes glaze over at reading or you do not understand any part of it, go get yourself an attorney who likes to read franchise agreements and wants to explain your agreement to you.
  • Franchise registration in Maryland: The Maryland Attorney General's Securities Division regulates franchisors in Maryland. Here are some FAQs from the Maryland Attorney General regarding franchise registration. In Maryland, franchisors must first register and be approved before selling franchises within the state. If a franchisor is offering franchises for sale in Maryland without registering, stop right there.
  • Franchise registration in the District of Columbia: The majority of states do not require franchise registration. Call me if you are looking at a franchise in the District of Columbia.
  • Federal complaints: You can actually get complaints made against a franchisor with the Federal Trade Commission by sending a Freedom of Information Act request. Read their FAQs here.
  • Financial documents: It is too late to find out about a poorly performing franchisor after you sign the franchise agreement. Generally, the franchise disclosure document must provide three years of "audited" financial statements. You will want expert advice on those financials from a CPA used to dealing with the financial statements coming with franchise disclosure documents. What financial promises are they making to you?
  • Litigation history: Who has sued this franchisor? Who have they sued? Will one of you be suing the other? The FDD is supposed to provide up to 10 years of this information. You can also have public searches done of court records nationwide to see whether the franchisor is cheating on those disclosures.
  • Franchisee satisfaction/dissatisfaction: In theory, you can get some idea from the FDD of how many franchisees have given up on the franchise. The FDD should also list franchisees to contact. The internet may show you the complaints that the franchisor is trying to hide. If you aren't digging through this material, it may hurt you. A lot.

Where To Next?

These avenues are just a start. There are plenty of ways a bad franchisor can hide a bad product, so even if you review each of the above, there may still be problems for which there is no paper trail. You still want to have researched all of the above thoroughly before you pay any money or sign any franchise agreement. If you would like help working through what attorneys call this "due diligence," call our firm at 301-424-1177 or contact us online.

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