Quality Important in Selecting Franchise System

So I have not posted much lately because I was in Paris for a family vacation. OK I know that is not a good excuse but we all need some down time! As a consolation for my absence from the blogosphere, here is one of my best photos from Paris!

But we are back to business and I came across an article published by BlueMauMau that reports on a study conducted by FranchiseGrade.com: Study: Bottom Quintile of Franchisors Churn Franchises Three Times More than the Top.

"Churn" is the turnover rate for terminated franchisees - and the article indicates that: "The bottom 10 percent of bad franchisors have more than triple the churn of franchised stores from franchisor terminations of stores and ceased operations by franchisees than the top 10 percent, according to a 5 year research of Franchise Disclosure Documents by FranchiseGrade.com." This is a significant difference and one that all potential franchise buyers should take into account when deciding on a franchise system.

As a franchise attorney, I see many questionable franchise offering and implore clients to conduct thorough due diligence! There are too many ways to lose your money out there ... and while many systems ride the wave of "franchising is great," not all of them are successful and some do quite poorly.

Protect yourself - get a Franchise Disclosure Document, work with knowledgeable counsel, read some books about buying a franchise (like mine), and check out grading services like The Franchise Grade® Top 500 list - these are all low cost ways to conduct due diligence. Do not make up your mind until you have ALL the information.

Quality is important.

DIY Rant - Your Money or Your Life

Sorry but I have to rant - but my rant is at least related to my last post: Why Structuring Your Business Relationship is Important.

The "Do It Yourself" approach to forming a business entity (and, to some degree, in analyzing Franchise Disclosure Documents) is all the rage these days. I just file something online with the Secretary of State or State Corporation Commission and I am done. Easy, no legal fees involved, and I just saved a "ton of money."

So here is the rant: in the last five years, I have seen more incomplete, screwed-up, improperly formed entities than in my previous 35 years-plus combined. Why? Folks think they can DIY-it! And, this is a prevalent practice among franchise-operators trying to save a buck. Ladies and Gentlemen, this is not a home improvement project you can pull off the shelf at The Home Depot.

Why do you want an entity to begin with? To protect your personal assets and, in some instances, to enjoy certain tax benefits. If you screw-up the formation - by not creating the proper internal governing documents, not issuing share or membership certificates, not establishing the correct accounting procedures and the like - you may have just placed your personal assets at risk. In other words, your money or your life!

So do yourself a favor. That "ton of money" you think you saved could be peanuts if your personal liability is at risk for a major business reversal, personal injury or other business liability. If you are just forming an entity get yourself a good business lawyer; and do it right; if you formed an entity without a lawyer, get yourself a review by a good business lawyer. Gaining protection from a properly formed entity is your best "life" insurance policy that has a one-time premium payment! Get one.

See you at The Home Depot.