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https://www.goldlawgroup.com
Phone: (202) 293-3947
1629 K St. NW, Suite 300
Washington, DC 20006

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As a franchisee, operating during the COVID-19 crisis presents unique challenges. Not only must you contend with the economic impacts of the situation, but you must also continue to meet your contractual obligations to your franchisor.

While some franchisors are offering temporary financial relief to their franchisees during the COVID-19 crisis, others are not. Additionally, many franchisors are continuing to aggressively pursue termination efforts against non-paying and non-conforming franchisees.

With this in mind, if you are a franchisee and you are struggling to stay in business during the pandemic, here is some important information for you to know:

Q: What should I do if I can't afford my royalty fees or marketing fund contributions due to COVID-19?

For franchisees, royalty fees and marketing fund contributions can make it difficult to turn a profit even under normal circumstances. During the pandemic, many franchisees are finding that they cannot afford to pay these costs while also making payroll and remaining current on their other obligations. However, non-payment of royalty fees or marketing fund contributions is grounds for termination, so franchisees must be extremely careful about paying these when they are due.

Loan options are available (although the Paycheck Protection Program stopped accepting applications in early August), and some franchisors are now offering royalty deferrals and other "relief packages." Before pursuing these options, franchisees must ensure that they have a clear understanding of all of the terms and conditions that apply.

Q: Does my franchise agreement's force majeure clause excuse non-performance during the COVID-19 crisis?

The basic concept behind a "force majeure" clause is that it excuses contractual non-performance when circumstances beyond the parties' control render performance impossible. However, some force majeure provisions are worded differently, and not all of these clauses will excuse performance due to COVID-19. To determine how your franchise agreement's force majeure clause applies during the pandemic-if at all-you will need to have your agreement reviewed by a franchise attorney.

Q: Do I have to pay workers' compensation if one of my employees contracts COVID-19?

While some states provide protections for certain employers in circumstances in which employees contract COVID-19, others do not. As a result, to determine your franchise's obligations, you will need to review the latest updates to the laws in your state. Additionally, the federal Families First Coronavirus Response Act (FFCRA) has established a temporary right to paid, job-protected leave for employees who are diagnosed (or whose family members are diagnosed) with COVID-19, and other federal laws may apply, as well.

Q: What if I need to adopt social distancing protocols or other safety measures that don't comply with my franchisor's operations manual?

At this point, all franchisors should be working with their franchisees to ensure that they can implement appropriate safety protocols-whether they are required by state law or they are simply in the best interests of employees and customers. If your franchisor is not providing sufficient guidance or flexibility, or if you believe you need to do more than your franchisor is allowing, you should consult with a franchise attorney to determine what options you have available.

Q: Can my franchisor terminate my franchise agreement if I cannot pay my royalties or adopt safety measures that don't comply with the operations manual during the pandemic?

Potentially, yes. Franchisors reserve broad termination rights in their franchise agreements, and this invariably includes the right to terminate for non-payment or non-compliance. While some franchisors may choose to grant concessions or offer leeway during the COVID-19 pandemic, they are under no obligation to do so. As discussed above, your franchise agreement's force majeure clause might apply, but whether (and to what extent) it protects you will depend on the specific wording of your agreement.

Q: What should I do if I am concerned about losing my franchise due to the COVID-19 crisis?

If you have not been paying your royalties or advertising fund fees, have received a notice of non-compliance, or you have any other reason to be concerned about the fate of your franchise as a result of the COVID-19 crisis, the best thing you can do is to be proactive about your situation. Do not take a wait-and-see approach to find out if your franchisor is going to pursue termination. Consult with a franchise attorney about the options you have available, and develop an informed strategy focused on shoring up your franchise's finances, working with your franchisor to avoid termination, or preparing any potential legal claims against your franchisor.

Q: Is now a good time to pursue additional franchise opportunities?

While many franchisees are struggling due to the economic impacts of the COVID-19 crisis, others are thriving. If your franchise has experienced prosperity during the crisis, you might be thinking about opening a second outlet.

Depending on your financial circumstances, this could potentially be a good option. There are some incentives out there; not only concerning franchise opportunities specifically, but with regard to real estate leases, vehicle leases and other business costs, as well. Of course, you will need to carefully review the terms of your franchisor's current franchise agreement or area development agreement, and you will need to carefully assess all of the various legal and financial risks involved, as well.

Q: What else do I need to know about operating my franchise during the COVID-19 pandemic?

While great progress is being made toward a COVID-19 vaccine, and while we are now nine months into living with the pandemic, there is still more struggle to come. As a franchisee, it is important to continue to approach the pandemic with a long-term perspective in mind.

Do you have the financial resources you will need to continue weathering the storm? Is it time to address concerns about your franchisor's lack of response to the crisis? To protect your franchise to the fullest extent possible, you will want to move forward with eyes wide open and with a clear understanding of the practicalities at hand.

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What You Need to Know About Operating a Franchise During the COVID-19 Crisis

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As a franchisee, operating during the COVID-19 crisis presents unique challenges. Not only must you contend with the economic impacts of the situation, but you must also continue to meet your contractual obligations to your franchisor. While some franchisors are offering temporary financial relief to their franchisees during the COVID-19 crisis, others are not.

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Franchise Litigation Attorney | Goldstein Law Firm, PLLC

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Franchise litigation attorney Jeffrey M. Goldstein represents franchisees and dealers nationwide in lawsuits against franchisors. Request a free consultation now.

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Buying a franchise is a complex and long-term investment; and, if you are like most first-time franchise buyers, it will be one of the biggest investments of your life. As a result, the decisions you make during the buying process are extremely important. And this starts with deciding which franchise opportunity you want to pursue.

There are lots of options. According to Franchising.com, there are more than 3,000 franchisors operating in the United States currently, and, "an average of 300 new brands start franchising each year." Of course, not all of these options will be relevant to you. In fact, once you decide what type of franchise you want to own, you start looking into geographical availability, and you start getting a feel for which franchised brands resonate with you and which ones don't - you may quickly find yourself trying to decide between just two or three franchise systems.

But, while narrowing down your options from 3,000-plus is easy, narrowing down your options from two or three to the final one is a different task altogether. All franchise systems are not alike; and, while franchisees are independent business owners, their success also depends heavily on their franchisors in a variety of different ways.

From the fees franchisors collect to how much they spend on advertising and how vigorously they protect their brands, many of the business decisions franchisors make have a direct impact on their franchisees' businesses as well. As a result, if you don't make an informed decision, you could very well find yourself struggling to make it as a franchisee.

7 Factors to consider when deciding between two (or more) franchise opportunities

With all of this in mind, when buying a franchise, how do you make an informed decision about which franchise opportunity to pursue? Here are seven factors to consider when you have narrowed down your options to two (or perhaps three to five) franchise opportunities:

1. Initial investment

The initial investment is the total amount of money you will need to establish your franchise and open for business. Initial investments vary widely between types of franchises. While opening a fitness center or restaurant could easily require an initial investment of a quarter-million dollars or more, you may be able to start a mobile franchise for somewhere in the range of $30,000 to $40,000.

How to compare initial investments

In order to compare initial investments, you can review Item 7 of each franchisor's Franchise Disclosure Document (FDD). Depending on the franchises you are seeking to compare, you may also be able to find initial investment information online. When comparing franchisors' Item 7 disclosures, there are a number of factors you will want to keep in mind, including:

Franchisors' Item 7 figures are estimates only, and you will need to independently assess your costs to open a franchise.

Not all franchisors include the same costs in their Item 7 disclosures. When comparing initial investments, make note of line items that only appear in one franchisor's FDD.

A significant portion of the Item 7 initial investment estimate is the "Additional Funds" line item. This is an amount that is intended to cover your expenses during the opening phase before your franchise becomes profitable. You will need to read the footnotes to the Item 7 table in order to determine what period this line item covers.

2. Royalties and marketing fees

Once you open for business, you will need to pay royalty and marketing fees to your franchisor on an ongoing basis. Most franchisors calculate their royalties and marketing fees as a percentage of gross revenue and require franchisees to pay on a monthly basis. However, there are some exceptions, and you will need to carefully review Item 6 of the FDD in order to determine the ongoing fees associated with each franchise opportunity you are considering.

While there are some loose standards for royalties and marketing fees, franchisors are free to charge whatever they believe their franchisees will be willing to pay. Some franchisors charge minimum fees as well, which means that you must pay a certain dollar amount regardless of your franchise's revenue for the month. In addition, some franchisors require their franchisees to pay "lost future royalties," which means that if your franchise goes under, you must still pay what you would have owed had your franchise been successful.

3. Territory rights

Most franchises come with some sort of territory. What it means to be granted a territory as a franchisee depends on the specific terms of the franchise agreement. Some franchisors offer "exclusive" territories within which no other franchisees are permitted to sell their goods or services (although franchisors generally reserve the right to sell in their franchisees' territories from company-owned locations). Others, however, simply restrict the geographic area in which franchisees can spend their marketing dollars.

In order to determine what type of territory a franchisor offers, you can review Item 12 of the FDD. However, it will be important to review the relevant terms of the franchise agreement as well, as the franchisor's Item 12 summary may not fully describe the restrictions that apply to franchisees' territorial rights.

4. Initial term and renewals

When you buy a franchise, your rights are not unlimited in duration. Your franchise agreement will specify an initial term, and it will provide a list of conditions that you will need to satisfy in order to renew your franchise agreement when the initial term expires.

As a franchisee, what you do not want to do is work on building your business for two or three years and just start to earn a decent living only to have your franchisor refuse to renew your franchise agreement. At this point, you might not have even earned back your initial investment. As a result, it is generally better to have a longer initial term rather than a shorter one, although you also need to avoid locking yourself into a long-term agreement with no way of getting out if your franchise simply isn't profitable.

5. Operational restrictions and support

When you buy a franchise, what are you paying for? In most cases, you are paying for two things: (i) the right to use the franchisor's trademarks; and, (ii) the right to use the franchisor's business system and receive operational support as a franchisee. If you need support and you can't get it, you are not going to be satisfied, and you are going to wish that you had chosen a different franchise.

Another factor to consider is the extent to which each franchisor restricts its franchisees' operations. You can get a sense of this by reviewing Items 8 and 11 of the FDD, and also by speaking to current and former franchisees of each system. While you want to know that your franchisor will offer and enforce system-wide standards in order to establish uniformity and foster customer loyalty, you also need to make sure that you will have the flexibility you need to run a successful business.

6. System size and growth

While bigger isn't necessarily better in franchising, there is certainly something to be said for a franchisor being able to build and manage a nationwide system with hundreds of franchisees who are (mostly) able to stay in business for multiple years. At the same time, there can be advantages to joining a fledgling franchise system as well-as long as the franchisor has the personnel and financial resources needed in order to grow the system effectively.

When comparing franchise opportunities, it is a good idea to spend a decent amount of time reviewing Item 20 of each franchisor's FDD. Item 20 contains multiple tables (with footnotes) that describe franchisee signings, openings, closings, and terminations. Item 20 must also contain a state-by-state list of projected openings, and you can speak with each franchisor's representative to find out if they are on track to meet or exceed their projections.

7. Post-termination covenants

In addition to the possibility of facing liability for "lost future royalties" as discussed above, as a prospective franchisee, it is important to be aware of any other post-termination covenants in your franchise agreement as well. These can vary widely from one franchise system to the next, so you will want to carefully review the termination provisions of the franchise agreement for each franchise opportunity you are considering.

Non-competition and non-solicitation covenants are both fairly standard, although some franchisors attempt to impose restrictions that are far more stringent than others. You can also expect to have to stop using the franchisor's system and trademarks promptly, although you may be able to find some short-term leeway here as well.

Do your due diligence

This list is by no means exhaustive; and, before choosing a franchise and signing a franchise agreement, it is critical to conduct thorough due diligence and reach a sound decision that is based on your personal belief in your ability to succeed. Make sure that you develop a business plan to help you navigate your decision and ensure that your franchise choice can be succesful.

For an overview of some of the primary steps involved in evaluating franchise opportunities, you can read 10 Considerations for Due Diligence in Purchasing a Franchise.

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7 Factors to Consider When Comparing Franchise Opportunities

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Buying a franchise is a complex and long-term investment; and, if you are like most first-time franchise buyers, it will be one of the biggest investments of your life. As a result, the decisions you make during the buying process are extremely important. And this starts with deciding which franchise opportunity you want to pursue.

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Franchise Business Review | Free Consultations | Goldstein Law Firm

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Considering a franchise opportunity? We provide three tiers of flat-rate franchise business reviews. Call (202) 293-3947 to schedule a free consultation.

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5 Considerations for Buying a Home-Based Franchise

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5 Considerations for Buying a Home-Based Franchise

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With many people still out of work as a result of the COVID-19 crisis, and with the crisis limiting the opportunities that are available for growing a successful brick-and-mortar business, interest in home-based franchises has spiked in recent months. If you can work from home and be your own boss while relying on the support and experience of a successful franchisor, why wouldn't you consider a home-based franchise opportunity?

While a home-based franchise can be a viable business, there are various practical, financial and legal considerations involved in starting a franchise of any type-and particularly one that you operate from your own home. Here are the top five considerations for buying a home-based franchise:

1. Is the Franchisor Well-Established?

Just because a franchise opportunity exists and is listed in some online franchise directories, this does not necessarily mean that it is a sound investment. Due to the recent uptick in demand for home-based franchises, many entrepreneurs have rushed to bring home-based franchise opportunities to market.

Before buying a franchise, it is essential to perform thorough due diligence. Schedule a time to speak with the franchisor's representatives, and also speak with several current and former franchisees. Be sure to thoroughly read the Franchise Disclosure Document (FDD), which provides important information about the franchisor. It is especially important to review the franchisor information in Items 1 through 4 and the franchisor's financial data in Item 21. If you are deciding between more than one franchise, compare the FDDs to see which one offers the most favorable terms.

2. Will You Receive Adequate Operational Support?

As a home-based franchisee, will you have access to the operational support you need when you need it? This is an extremely important question that you will want to have answered during your due diligence. As a franchisee, this support is a big part of what you pay for; but, too often, franchisees find that the support they receive does not align with what they were promised before they signed their franchise agreement. This is why it is important to speak to current and former franchisees, as you can learn from their experiences how much support you can realistically expect from the franchisor. You can also seek out reviews online.

3. Are the Legal Terms Fair and Reasonable?

You can expect your franchise agreement to be one-sided in favor of the franchisor, but it should not be so one-sided that you are left without any legal rights or remedies. In addition to reviewing the FDD and franchise agreement yourself, you should also have them reviewed by an experienced franchise attorney. They can also assist you with negotiating the terms of the agreement, which the franchisor's representative will likely try to discourage you from doing.

4. Will You Be Able to Earn a Living?

While you cannot predict the future, you can reach an informed conclusion about how much you believe you can reasonably expect to earn as a home-based franchisee. Your royalties and advertising fund contributions could be in the range of seven percent of your franchise's gross revenue, and you will need to factor in these fees (in addition to your other costs) when preparing your pro forma statements, which are standardized documents used to calculate and present financial projections for your business.

5. Are You Equipped to Operate a Business from Home?

Finally, are you equipped to operate a business from home? Do you have the physical space the franchise requires, and do you have the discipline to stay focused when you need to? Do you have a quality computer and reliable internet connection? Do you have another source of income or savings to get by while you are getting your new business off the ground? While it sounds tempting to most people, operating a home-based business isn't for everyone, and you will need to realistically assess whether it is a feasible option for you.

Are you thinking about buying a home-based franchise? Owning your own business is a lot of work, and the franchise industry has a high rate of failure. For those that are successful, though, the rewards of being one's own boss and being financially independent are well worth it. If it is something you are serious about pursuing, it is recommended to first discuss the opportunity with a knowledgeable franchise lawyer to get a good understanding of the process and your options.

Jeffrey M. Goldstein, a franchise attorney, is the Founding Partner of Goldstein Law Firm, PLLC, a national law firm located in Washington, DC. Mr. Goldstein personally brings over three decades of cutting-edge commercial litigation expertise and experience to his clients. Under his supervision the firm has come to be recognized as a top tier franchise law firm for franchisees and dealers. Connect on LinkedIn, Twitter, and Facebook. Address of Goldstein Law Firm, PLLC is 1629 K St. NW, Suite 300 Washington, DC 20006. Firm Phone: (202) 293-3947.

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5 Considerations for Buying a Home-Based Franchise | Home Business Magazine

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With many people still out of work as a result of the COVID-19 crisis, and with the crisis limiting the opportunities that are available for growing a successful brick-and-mortar business, interest in home-based franchises has spiked in recent months.

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THE FOUR KINDS OF FRANCHISE LAWYERS (AND WHICH ONE IS RIGHT FOR YOU)

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THE FOUR KINDS OF FRANCHISE LAWYERS (AND WHICH ONE IS RIGHT FOR YOU)

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The Four Kinds of Franchise Lawyers (and Which One is Right for You) | Goldstein Law Firm

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Franchisee lawyer Jeff Goldstein explains the differences between different types of franchise lawyers and provides some tips for choosing your legal representation.

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Franchise Valuation: What Is Your Franchise Worth?

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Franchise Valuation: What Is Your Franchise Worth?

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What are the Top Franchises in Each Major Industry for 2021?

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What are the Top Franchises in Each Major Industry for 2021?

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When you decide to buy a franchise, you need to find some way to narrow your search. There are thousands of franchised brands in the United States, and there are lots of competing concepts in all of the major industries.

Many people narrow their search by looking at lists of "top franchises." But, while this can be somewhat informative, it is important to take these lists with a grain of salt. Some are certainly better than others, but they all use their own limited set of criteria, and you ultimately need to make your own determination as to which franchise is the right franchise for you.

What are Some of the "Top Franchises" for 2021?

One of the most well-known "top franchises" lists is the Entrepreneur.com Franchise 500. In compiling its list, Entrepreneur.com asks franchisors to submit information, and it only considers franchisors that do so. It then weighs several factors that fall into the "Five Pillars of the Franchise 500"-some of which are objective, some of which are subjective, and some of which do not necessarily weigh in favor of one franchise being "better" than another (i.e., the size of the franchise system).

Without endorsing the Entrepreneur.com Franchise 500 (or any franchise in particular), we thought it would be interesting to break down the list based on the major industries in franchising. So, without further delay, here are the "top franchises" in five key industries based on the Enrepreneur.com Franchise 500:

Food Franchises

Home and Business Product and Service Franchises

Fitness Franchises

Haircare and Salon Franchises

Education and Children's Franchises

As we mentioned above, the Entrepreneur.com Franchise 500 is not the only list out there. The Franchise Times publishes an annual list called the Top 200+, and FranchiseDirect.com publishes a list of its Top 100 Global Franchises. There are others as well, and examining the similarities and differences between these lists can help to give you an idea of which franchises are consistently being ranked above others.

But, again, rankings are just one factor to consider, and they do not necessarily mean that you will or will not succeed with any particular franchise opportunity.

What Else Do You Need to Consider When Buying a Franchise?

When buying a franchise, there are several important factors to consider. Ultimately, you need to choose an opportunity that you believe gives you a reasonable chance of success. This might be a "top franchise," or it might be something else that makes more sense for your personal skills, finances, and geographic location.

Evaluating a franchise opportunity requires thorough due diligence, and you also need to carefully review the terms of the Franchise Disclosure Document (FDD) and franchise agreement. In many cases, it will also be necessary to negotiate the terms of the franchise agreement in order to secure critical protections for both the term of your franchise and post-termination. An experienced franchise attorney can assist by conducting a franchise business review, as well as with the negotiation process.

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What are the Top Franchises in Each Major Industry for 2021?

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When you decide to buy a franchise, you need to find some way to narrow your search. There are thousands of franchised brands in the United States, and there are lots of competing concepts in all of the major industries. Many people narrow their search by looking at lists of "top franchises."

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Franchisee FAQs Answered By a Franchise Lawyer

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Franchisee FAQs Answered By a Franchise Lawyer

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15 Factors to Consider Before Choosing a Franchise

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15 Factors to Consider Before Choosing a Franchise

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Buying a Franchise: 15 Factors to Consider - Vetted Biz

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In the process of choosing a franchise? reveal the key 15 factors you MUST consider before buying a franchise on this article.