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Posted on Tue, 01/3/2012 - 11:40 PM by
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Recently, I was asked: "If you could negotiate any terms up front, what would be the key ones?" Here is my general approach: First, review the FDD and determine if they are using franchise brokers to sell. If so, you can knock off about 11-20k from the franchise price by asking for the broker's rebate. Now, you have a budget and money. Use it to hire a professional franchise attorney who will negotiate the terms in the agreement that make sense for your situation. (And yes, franchisors will offer addendums or side agreements - the California has a database is full of such side deals. If you accept at face value that franchisors "won't do x", then franchising is going to be a one sided deal for you.) Any terms that go directly to the franchisor's business model, such as royalty rate and advertising spend are not on the table, except if you are going to be an area developer. Get rid of the personal liability condition - it is a millstone which will force you to continue funding a mistake. The franchisor is not guaranteeing anything, why should you? Never sign an agreement with an unlimited personal guarantee. Enumerate exactly the oral/written representations you are relying upon when signing the contract and carve out an exemption from the too general integration clause. You probably want a discussion about the choice of laws/forum selection clause. On item 7/8 in the FDD, you want written representations which clarify some of your concerns. Specific to your individual situation. Get rid of the cross default clause, and the obey all laws clause. These clauses transfer too much bargaining power, via threats, to the franchisor. They are also completely unnecessary. Get rid of the right of first refusal, which will drive down the value of selling. Carefully review the liquidated damages clause, if there is one. Avoid any franchises which limit your use of social media for local marketing; these franchisors are already signalling that they are going to waste your money. Those are the general areas, and there may be more important specific clauses of concern to you depending on your own business model. It is impossible to give good guidance on the territory issue, for example, with seeing the exact clause and knowing of your own local marketing ideas. You have the maximum bargaining power at the beginning of the relationship - just before you say "yes". If you don't have professional training in negotiation, hire an attorney who does have specialized skill in this area. Expect to pay between 7-10k to get an agreement which protects your rights. Do not waste your time trying to talk with other franchisees, if there is an independent franchisee trade association. Talk with them directly about how the franchise agreement has changed, for better or worse. What additions would you make? MORE NEWS FROM BLUEMAUMAUTaxes and the DeficitNormally, this column is supposed to cover the tax changes over the prior year and how they impact the hospitality industry. Last year, we commented about how 2010 was an interesting year but little in the tax field had passed. 2010 was all about health care reform, the change in control of the House and the rise of the tea party. It was a very political and partisan year. If anything, 2011 was worse. Never has so little been accomplished by so many. Brinkmanship was the key word for 2011. It will be known more for what did not occur rather than what did. It is not unusual for partisan politics to take center stage in an election year. While 2011 was not, the race for the Presidency and control of the House and Senate began before all the winners from 2010 were known. National Press Writes about Restaurant FranchisingOn May 18th, the national press, both The New York Times and The Wall Street Journal, wrote about restaurant franchising. Some additional notes are warranted. Mediation: Good, Bad or It Depends?Mediation is often touted as the greatest thing since sliced bread for faster, fairer, and cheaper dispute resolution. Is it? Going International? Don’t Forget One Important ThingFranchisors that are considering exporting their franchise concept to other countries are advised to prepare by following a checklist of key items. However, there is one area that is often overlooked or shortchanged in the process. Going Green Costs Franchisees Much GreenBeing forced to buy imaginary products is just one of the nonsensical results of government policy affecting franchisors and franchisees. RELATED SMALL BUSINESS NEWSMobile Franchises: Do You Like Cars? Hot Franchise Topic: Getting a LoanIt seems like the entire franchise industry is focused on funding, and with good reason; franchise loans are still a bit challenging to secure. Good News, U.S. Hotel Profit RecoveryAccording to the new PKF Trends survey, the U.S. lodging industry produced a 12.7% profit growth in 2011. 80.5% of participating hotels enjoyed an increase in total revenue while 72.3% achieved growth in profits. The recently released 2012 edition of Trends presents data from a sample of nearly 7000 financial statements of United States hotels. For the Trends report, hotel profits are defined as net operating income (NOI) before deductions for capital reserves, rent, interest, income taxes, depreciation and amortization. Federal Court Invalidates "Quickie" Union Election Rule, For NowOn May 14, 2012, the U.S. District Court for the District of Columbia set aside a controversial final rule of the National Labor Relations Board ("NLRB") that was designed to make it easier and faster for unions to hold organizing elections. Chamber of Commerce of the United States of America, et al. v. NLRB, Case No. 11-02262 (D.D.C. May 14, 2012). Business groups are hailing the decision, but the celebration may be short lived. Because the ruling was essentially decided on a procedural point, the NLRB may seek to resurrect the rule, which creates a very short window for union elections, and leaves employers with little time to react to an organized union campaign. Field Representatives Coach Franchisees to Victory
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