Evaluating franchise attorneys and evaluating franchise consultants can seem a daunting task. But the firm a company selects to assist its entry into franchising, refine existing franchise efforts or make franchise opportunity investment decisions will have profound consequences. While asking for a list of references is one approach (and when is anyone ever dumb enough to provide a bad reference?) there are more objective criteria that are not dependent on selectively disseminated information.
By addressing the nine Franchise Questions, topics and subcategories of information discussed below, you will eliminate virtually 95% of the individuals or firms you are considering. Then efforts can concentrate on evaluating the 5% cream of the crop (especially franchise attorneys) that truly merit consideration:
A. FRANCHISE EXPERT:
The #1 factor in evaluating so-called expertise – are the principals really franchise experts? There are objective criteria to determine this:
(1) Have they qualified and been allowed to testify as a franchise expert in court and arbitration proceedings? Being involved as a franchise expert in the franchise litigation process gives a sensitivity and radar for detecting and avoiding future franchise problems.
(2) How many books on franchising have been written by the principals?
(3) How many franchise articles have been published in journals or magazines?
(4) What is their franchise-related teaching experience? (see topics E and F below)
(5) What is their depth of experience in the franchise industry? (see next topic below)
B. EXPERIENCE IN THE FRANCHISE INDUSTRY:
(1) Length of time the firm has operated exclusively in the franchise industry?
(2) Experience on both sides of the franchise fence – working with franchise companies (franchisors) as well as with individual investors (franchisees) who have purchased a franchise?
(3) Past experience principals have owning and operating a franchised business? This factor is absolutely critical. If the principals have owned and operated a franchise, they bring a unique perspective and radar for avoiding future franchise relationship problems from disgruntled franchise owners.
C. COMPREHENSIVE TRAINING & ONGOING SERVICES; CONTROL SYSTEMS:
(1) Can (and will) the firm train your personnel to operate and manage your new franchise company? Remember, you’re entering an entirely different business, one requiring new skills and abilities. If this topic is not addressed in detail, you might as well earmark the franchise fees received when you sell franchises for a future franchise litigation war chest;
(2) Will the firm help you review and update operational (franchise operations manual) and legal documentation (franchise offering circular) on an ongoing basis?
(3) Has the firm developed, and will they help you put into place, franchise marketing, sales control and legal compliance programs during the critical implementation (start-up) phase of your franchise program?
The existence of these programs is essential to ensure only the cream of franchise applicants are allowed to enter the network, and to create a series of documented files should a dispute arise in the future. Most of the legal risk in franchising occurs during the franchise marketing cycle when franchises are sold. If your company’s done a good job here with these programs, then you’ve eliminated most of the risk.
D. LEGAL: FRANCHISE ATTORNEY
(1) Is the law practice devoted exclusively to franchise law?
(2) Total number of franchise disclosure documents (formerly called franchise offering circulars) drafted and reviewed?
(3) Experience filing franchise registrations and working with state examiners in all 14-plus franchise registration states?
(4) Experience represeting franchise companies as well as persons buying a franchise? Knowing both sides of the fence is a tremendous asset.
E. ACADEMIC: UNIVERSITY & COLLEGE
Experience teaching franchise courses at graduate and undergraduate university levels?
F. ACADEMIC: PROFESSIONAL
Experience teaching franchise courses to franchise attorneys and general practice attorneys?
G. BLEND OF BUSINESS & LEGAL SKILLS:
Specialist franchise attorneys and law firms produce tight legal agreements (sometimes overly so leading to future franchise relationship problems) and usually adequate franchise offering circulars. Setting aside the overly tight contract issue, the problem is most franchise attorneys – franchise lawyers are not capable of making sound, strategic business decisions and providing practical, ongoing advice. Some franchise consultants, on the other hand, have good business sense, but lack the requisite legal skills. Questions:
(1) Does the firm have the proper blend of business savvy and in-house franchise legal expertise? It’s always a big plus if the franchise attorney also has an MBA. You can do a Google search with these twin attributes (franchise attorney MBA) and narrow the field considerably.
(2) Can the firm produce good legal documentation (franchise disclosure documents) and help you edit (or create) consistent operational documents (such as the franchise operations manual, training program, etc.) If your franchise agreement says “x” but your franchise operations manual or advertising materials say “y” about the same issue, be prepared to pay hefty franchise litigation fees and deal with franchise litigation attorneys in the future.
(3)Can the firm provide competent and practical ongoing advice in critical areas like effective franchise marketing, media decisions, interviewing franchise buyers, adopting the best franchise organizational structure, implementing a franchise advisory council, etc? Mistakes made in these areas can easily cost the franchise company tens, if not hundreds of thousands of dollars.
H. CONTRACT FAIRNESS:
Does the firm give you an option of choosing between:
(a) an hourly rate and
(b) a flat contract amount, where you don’t have to worry about accumulated hours and an unknown total amount?
I. RED FLAGS – BEWARE OF ANY OF THE FOLLOWING:
• Combination teams where one entity does one part of the project and another the other part. For example, a consulting firm does planning, and operational documentation, while an attorney “they know very well” writes the legal documentation.
• Or, a variant of the above, the company in the “fine print” of its contract, requires your attorney (who you obviously have to pay) to review and approve everything they do because the company (it says) is not rendering legal advice. Actually, by providing documents that affect legal rights, they are rendering legal advice, but in an illegal manner. It’s called the unauthorized practice of law. You end up paying two attorneys – yours and theirs. Besides the expense, it sets you up for future franchise problems. Their attorney represents who? The franchise packaging group, of course, and definitely not you. He or she is typically a recent law school graduate who hasn’t figured out what they’re doing is illegal and could cause them to lose their license to practice law. Besides that, they represent the franchise consulting group, whose interest is to churn as many franchise packages per year as possible. You end up with a bad franchise disclosure document and sloppy franchise operations manuals. To save time, the franchise agreement gets watered down so it’s easier to push through some franchise registration states. Some of the “t’s” may be crossed and some of the “i’s” dotted, but not most of them. The end product are documents that set you up for future franchise litigation difficulties.
• Firms that advise you to franchise your business, and they’ve never seen your business! You’d be surprised how often this happens.
• Firms that say they’ll write your franchise operations manual for you. How someone, who knows absolutely nothing about your business, could ever come close to anything but a mediocre product at best, is a frightening thought. The use of boilerplate manuals produced by consulting groups is yet another future litigation time bomb. You are the true expert in your business. With competent guidance and editing, you’ll be able to produce a professional and workable operations manuals, if you don’t have these already.
• Pricing quotes that seem exceedingly high or low (especially “do-it-yourself” franchise kits).
• If you are buying a franchise, BEWARE of any attorney recommended by the franchise company. Even worse, beware of franchise companies who say you don’t need to use an attorney. There are a couple of these online.
• Firms (or individuals) that have EVER been sued for fraud, misrepresentation, the unauthorized practice of law or violating any franchise law. DON’T FORGET TO ASK THIS CRITICAL QUESTION!!
©1990-2008, Kevin B. Murphy, B.S., M.B.A., J.D. – all rights reserved
For more informaton, consult the Franchise Foundations website.