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Bloomfield Office
Three Regency Drive
Bloomfield, CT 06002
Phone: (860) 242-2221
Fax: (860) 286-0185New Haven Office
1164 Townsend Avenue
2nd Floor
New Haven, CT 06512
Phone: (203) 468-4770
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FRANCHISING CAN BE DAUNTING - Letter to the Hartford Courant 05-20-2008 A recent article in the Sunday, April 13, 2008, issue of The Hartford Courant entitled “Franchising: Is it for You?” is a balanced but superficial article which recommends that the entrepreneur conduct a self evaluation to assess the person’s aptitude for, and attitude about, operating a franchised business. It delves into the issue of whether a particular franchise offering is suitable for an individual based upon his personality, ability to deal with the public, and entrepreneurial spirit. It should be understood, however, that this analysis is only a preliminary step in the search for a franchise that is best suited for an individual. For most people, the documents provided to the prospective franchisee by the franchisor are daunting. The Franchise Disclosure Document (“FDD”) consists of 23 Items, including detailed background information about all aspects of the franchise system, together with charts, tables, lists, cross references, audited financial statements, financial performance representations, exhibits, state addenda, and copies of all contracts. The agreements consist of the Franchise Agreement, together with attached schedules, equipment leases, real estate leases and subleases and, if appropriate, development agreements. While the FDD must be written in plain English, the other documents, including the financial statements and the Franchise Agreement, are often couched in accounting technicalities and legalese. If a prospective franchisee jumps over the first hurdle and decides that the business concept is compatible with his interests and personality, he must also scale the second hurdle and address the legal terms and conditions, some of which may serve to dampen the enthusiasm of a prospective franchisee who falls in love with a franchise concept. Imagine investing $500,000 in a business you think is attractive, only to find out that you cannot later sell it without the Franchisor’s permission, and when the franchise ends, you cannot compete with the Franchisor by operating the same business concept within the market areas of all existing franchises, wherever they may be located in the United States. An analysis of the benefits of a particular franchise system is incomplete without learning more about it (due diligence) and by a full understanding of all of the terms and conditions of the franchise documents to which the franchisee will be bound for the term of the franchise and beyond. Franchise Agreements are merely licenses which typically last 7-15 years unless renewed. The mantra “investigate before you invest” is a warning that should be heeded by all prospective franchisees.For more information, please contact Attorney Martin A. Clayman.
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