Finding the best advisors in franchising?

AUTHOR: Michael H. Seid, Managing Director
Finding the best advisors in franchising?
First published on AllBusiness.com, December 2011
There was one thread that was common to many of the emails I received after my November
column appeared. People wanted recommendations for local lawyers or consultants to work
with them, either in starting a franchise system or for evaluating a franchise opportunity.
Having a qualified franchise consultant and franchise lawyer is important before you begin to
design and develop your franchise system.
Franchise law primarily deals with how a franchisor is required to offer their opportunity and
there is little, if anything, in the law that impacts what that opportunity is or how the franchise
relationship is structured – including the fees, rights, and obligations of the franchisor and
franchisee. A mistake made by many people new to franchising is believing that most franchise
agreements are uniform and that one agreement is going to be similar to another, even in the
same industry. That mistake in understanding is one reason that many franchisors and
franchisees run into significant problems later on. Franchising is significantly more about
business issues than it is about the law, and you will need to evaluate different possibilities and
make a host of decisions on the feasibility of franchising and the structure of the franchise
system required to meet your goals long before you need to speak with a lawyer.
If you don't believe me, spend a Sunday afternoon reading the franchise offering documents for
a few concepts that all sell burgers, like McDonald’s, Burger King, Wendy’s, Five Guys,
Smashburger, Hardee’s, Sonic, Checkers, and A&W. What you will find is that each have
significantly different offerings including level of investment, profile of franchisees, classes of
franchisees, initial fees, continuing fees, territorial rights, supply chains, sources of revenue,
marketing requirements, training, headquarters and field support, in-term obligations, post-term
obligations, length of agreement, renewal possibilities, and a hundred other things that make
each of them unique and marketable against the others.
Equally important, when evaluating whether or not a particular franchise opportunity meets your
needs, having a lawyer is essential before you sign the franchise agreement. Buying a franchise
without the assistance of a qualified franchise lawyer is the single biggest mistake you can
make, and is the one that frequently leads to problems between the franchisor and the
franchisee later on. If you go it alone and the rights you expected to be in the franchise
agreement are not there, the only person to blame is yourself.
There is a natural inclination, when you start to explore something as complex as franchising, to
engage a lawyer or consultant to assist you. But, before you engage any professional to work
with you, there are a few things you should do first.
© 2011 Michael H. Seid & Associates, LLC
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I have learned over the years that even the most experienced expert becomes a much better
advisor when their client has some knowledge of the subject under discussion. The client also is
able to better participate in the engagement, and is able to provide the needed direction to their
outside advisor on the culture and other aspects of the business that will impact the planning
process, and ultimately whether or not the execution of the strategy will be successful.
For this reason, my firm begins every engagement with our emerging franchisor clients with
several hours of classes and discussion on the basics of franchising, and of course we also
recommend that they read Franchising for Dummies. Besides providing them with some
knowledge about franchising, understanding the dynamics of franchising enables them to begin
to think about their company in the context of being a franchisor. It also allows for the removal of
many of the myths many people have about franchising that often impact their thinking and
decision-making during the franchise development process. Before you engage outside experts
to assist you, invest a little time and begin to learn all you can about franchising on your own.
There is an abundance of books and magazines available, and the Internet is full of professional
papers, useful articles, well thought-through presentations, and a ton of extremely good and
factual information. Much of the material on the Internet is also free.
But you need to be careful, as there is a lot of junk out there written by folks that none of the
professionals in franchising may have even heard of. Be wary of the websites and blogs where
everything is black-and-white and the site is biased toward one view on any issue. Be careful
when relying on any website where those who think differently or express alternative views are
vilified by the “regulars.” Every industry has the type of site where people post anonymously,
and the “experts” on such sites seem to have all the time in the world to post. Biased
information generally is near-useless information.
When looking for information on the Internet, many of the law firms and consulting firms, MSA
Worldwide included, post articles, presentations, and industry news on their firm’s websites. A
few even have newsletters that you can subscribe to. You can learn a lot about franchising and
the professionals that write the articles in this way.
I will admit, since I was just reelected to its board of directors, that I am biased toward the
information provided by the International Franchise Association on its website
(www.franchise.org) and in its newsletters and magazines. The IFA is arguably the most profranchising site on the Internet, and its bias toward franchising is clearly projected. But much of
the information in its newsletters and magazines is relatively unfiltered and is generally always
reliable and verifiable. On the site is an abundance of research produced by the IFA Education
Foundation as well as courses on franchising. You will also find information written by
franchisors, franchisees, and suppliers that are remarkably balanced for an industry trade
association. Most of the information is free and available to non-members. The IFA also has
conferences, programs, and meetings you can attend and, on their calendar, they list others in
franchising. When you begin to explore franchising, in addition to reading my book Franchising
for Dummies, the IFA is where you should start your exploration.
Once you are comfortable that you have a basic understand of franchising, working with
knowledgeable business advisors truly should be your next step. This is most important if you
are looking to become a franchisor, because it will be the business determinations that you
need to make that will drive the terms of the franchise offering. For the emerging franchisor, the
lawyer becomes essential once the decision to franchise has been made and the terms of the
franchise offering have been designed and developed by management and their business
© 2011 Michael H. Seid & Associates, LLC
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advisors. At that point, your consultant will be able to provide you with recommendations of
several lawyers to work with, based on their reputation among their peers.
If you are considering becoming a franchisee, most of the business advisors serving the
franchisee community are franchise brokers. While many franchise brokers are extremely
knowledgeable, it is important to remember that they make their principal living working for the
franchisor, and selling you one of the franchises they represent is their goal. It is not
recommended that you rely on the franchise broker or their legal advisors as a replacement for
your own legal counsel, any more than you would take advice from the seller’s attorney when
you are buying a house. While brokers can be a source of good information, it is important that
you have your own independent legal advisor to assist you in evaluating any franchise
opportunity and to help you understand the terms of the franchise agreement you will be signing.
As a prospective franchisee, working with a franchisee lawyer is absolutely essential. This is not
a place you should look to save money, and there is no way to overemphasize the need for you
to work with a qualified franchisee lawyer who represents you.
When looking for a lawyer to work with on a franchise-related matter, remember that all lawyers
are not equally knowledgeable about franchising. In fact, most members of the bar really don't
have enough working knowledge about franchise law and practices to be of much use to either
an emerging franchisor or prospective franchisee, and in reality can be quite dangerous to use.
Given its importance in the U.S. and the world economy, I am still surprised that franchise law is
not a major subject widely taught in law school (only around ten law schools in the U.S. teach
about franchising). It’s something that most lawyers learn from experience. You need to locate a
lawyer who is experienced in franchising, and you should never rely on a general practitioner.
While the trend is to work with both franchisors and franchisees, the vast majority of franchise
lawyers still work only one side of the street; that is, they represent either franchisors or
franchisees, but not both. The vast majority of franchise lawyers are predominately franchisororiented. As with most members of the bar, franchise lawyers are also split between those that
are principally litigators, or those that are principally transactional-oriented. If you are planning
on becoming a franchisor, the lawyer you want to work with is a transactional lawyer. If you are
looking to become a franchisee, since the pool of legal counsel available to you is smaller and
because of the type of services you are requiring, both transactional and litigation lawyers
generally will be able to provide you with the advice you need. But experience is still the key
here.
So, where do you find the best franchise lawyers? When selecting any professional, it is their
reputation for performance that is important to you. Getting a recommendation from another
professional you work with and trust is the strongest indication of the competence you can have
when conducting your interviews. As I mentioned above, ask your franchise consultant to
recommend to you several law firms that they have worked with and whose work product they
stand behind. At MSA we routinely work with more than 40 law firms and generally provide our
clients with two or three recommendations that we believe meet our client’s overall franchise
legal needs. Most franchisors will continue to retain their outside general lawyer for general
corporate and tax matters, and will use the franchise law firm only for franchise-related issues.
Another great source of advice may be your outside legal counsel and possibly even your
accountant.
© 2011 Michael H. Seid & Associates, LLC
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The lawyers you interview should be members of the American Bar Association Forum on
Franchising. This is a practice segment of the ABA, and almost all serious franchise lawyers
and most franchise business advisors, even if they are not lawyers, are members and regularly
attend their programs. Since the forum is peer-driven, the lawyers and consultants you interview
should routinely be selected by their peers to speak at the forum’s annual meeting and to
regularly contribute to its publications. Why would you ever want to work with a professional
who is not routinely and regularly recognized as an expert by their peers? Many, but not all,
franchise lawyers and consultants will also be members of the International Franchise
Association’s Supplier Forum and, as with the ABA, the better practitioners will routinely be
asked to speak at the IFA’s legal symposium and other programs.
Because some franchisee-oriented lawyers believe that the IFA is more supportive of their
franchisor members than their franchisee members, quite a number of the better franchisee
lawyers are unfortunately not members of the IFA. It is a sentiment that I understand based on
my many years of experience in the IFA, but I don't believe it is reflective of the organization
today. A good source for locating franchisee-oriented law firms is the ‘Mainly Franchisee’
section of Chambers USA. Firms only make it onto this list through peer review, and based on a
review of the firms they list, I think they do a good job. The information can be found at
chambersandpartners.com/uk/Editorial/42656.
Don’t be overly influenced by the prominence of an advertisement in a directory or in a
magazine. You really need to look for proven experience. Ask for references from their existing
and past clients, and check them out. Examine their specific practice experience, which is
usually described on the lawyer’s own website. You should also ask your current lawyer to
check the information found on the lawyer in a respected published directory such as
Martindale-Hubbell.
It is foolish to pick any professional based on their hourly rate. Lawyers and other professionals’
professional fees are usually based on their experience and their reputation. All professionals
are not equal, and saving money by picking someone who is not best-of-breed can be much
more expensive later on. Besides, with experience comes speed. Get an estimate of the total
cost of the engagement or the services you are requesting, not just what they will bill you by the
hour. The hourly billing rate is really not important. Have your general counsel work with you in
reviewing the engagement letter of your franchise lawyer and consultant before you sign it.
In most cases, the geographic location of the lawyer and consultant is immaterial. Today, most
franchise lawyers, especially those who work with franchisees, perform much of their work with
clients electronically or over the phone. All qualified franchise lawyers and consultants are fully
capable of working with you, and your goal is not to select the closest professional but the best
professional. “The best” does not mean the most expensive, nor does it mean the most
convenient geographically.
Finally, if you perform the investigation I recommend above and when contacting a franchise
lawyer find out they don't provide the services you require, ask them for a recommendation. The
ranks of great franchise lawyers and business advisors are relatively small. While we may hold
different philosophical views on the issues, we know the professionals on the other side who we
respect, and many of them are also friends. It makes dinner conversations so much more
interesting because of that.
© 2011 Michael H. Seid & Associates, LLC
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Take your time and invest in the best. Selecting your franchise lawyer and consultant is one
place where you cannot afford to make a mistake.
In the next few articles, we will begin look at how to determine if your business is ready to
become a franchisor, and what you need to do before you begin to offer franchises. Let me
know at [email protected] if you have any feedback, questions, or suggestions for
future articles.
I look forward to our continuing dialogue.
Michael is the Managing Director of MSA Worldwide, a domestic and international franchise
advisory firm, and is the author of Franchising for Dummies. He is Past Chair of the International
Franchise Association’s (IFA) Supplier Forum, has served on the IFA’s Executive Committee
and was recently reelected to its Board of Directors. Michael serves on several boards but is
most proud of his membership on the boards of the Health Store Foundation, CFWshops, and
One World Foundation that have developed 90-plus franchised clinics providing clinical services
and essential medicines in rural Kenya, Rwanda and Uganda. As part of its social mission, MSA
consults with social franchisors in developing countries to improve the human condition and
have a world-changing impact on poverty, diseases, and economic development.
Michael is a frequent speaker at programs for the IFA, ABA, universities, law schools, retail, and
professional organizations. He recently spoke at the annual Doha economic forum in Qatar on
the subject of creating a middle class in the Middle East as a solution to the causes of the Arab
Spring, and just returned from Mombasa, Kenya where he spoke on the use of franchising as a
method to improve the human conditions in the emerging world.
Headed by Managing Directors Michael Seid and Kay Ainsley, MSA Worldwide is the nation’s leading
franchise consulting firm providing strategic advice and tactical services to established and emerging
franchisors in the United States and internationally. For additional information on MSA, please visit our
website at www.msaworldwide.com or call 860-523-4257.
© 2011 Michael H. Seid & Associates, LLC
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