Does your franchise need a legal health check?

Inside Franchise Business: does your business need a legal check-up?Every franchise needs to undergo a health check to ensure paperwork, systems and processes are all in order. There is no such thing as ‘set and forget’ in relation to legal aspects of a franchise business.

Changes in law mean revisiting your documents as do the changes in your business model and processes. A legal review by an experienced franchise lawyer is a good idea at least annually. Most franchisors update their disclosure document in October so now is a good time to turn your mind to whether any improvements or enhancements to your legal position are required.

Franchisors will have made an investment with their lawyer at establishment stage and this is indeed a crucial time with your lawyer. The legal elements should be aligned to the business model and provide a robust platform for growth.

As the business evolves, there will be growing pains and some of your initial thinking will be tested. The real-life experiences will show you where the pressure points are and proactive franchisors will be constantly brainstorming business improvement and risk mitigation strategies. Your lawyer should have an ongoing involvement throughout this process, if not be leading the charge.

A health check will involve a documentation audit in which the lawyer will look for anything which is out of date as there have been several franchise code changes over the years which impact on the documents.

A lawyer will also make sure the drafting of the document is in order. Grammatical errors, incorrect clause referencing, incomplete or overlapping definitions are embarrassing at a time when you are seeking to project an image which will inspire confidence and attract investment.

Then there is the review of the franchise model itself.

Lawyers get an insight into this by reviewing the documents. A fresh set of eyes can be particularly useful in this area so don’t be afraid to give someone else a go at it. You have probably put a lot of work into your documents and may feel wedded to certain positioning or drafting but we strongly advise you embark on this exercise welcoming the challenge of positive change.

By the same token, change must be justified and carefully thought through. You may have to be strategic if you are expecting current franchisee change and you must think through the implications of different franchisees within the network having different rights if this is an outcome of change.

Lawyers who are active in franchising will be reviewing and advising on different franchise agreements for people who are getting pre-franchise advice so they will be highly skilled in issue spotting.

There is no substitute for experience in this area. There is a legal industry out there competing for your business so take advantage of this. Crea Legal is one firm offering a no cost, no obligation document audit and franchise health check. It doesn’t mean you have to leave your trusted advisor but it is worth having a comparison and it may redefine your expectations from your current lawyer.

You can prepare for your legal review by keeling a list of all issues you come across in daily franchising life. You can dump this on to your lawyer and they can advise what your options are to overcome issues and give recommendations within the constraints of the law.

Most franchisors are reactive and as lawyers we do most of our work on the back end. This is when a problem has not been addressed at an early stage and reached crisis point. There is only so much we can do at this time, damage may be irreparable and legal costs high.

The challenge for franchisors is to get on the front foot and deal with issues quickly and decisively up front.

Good management involves regularly challenging the status quo and frequently monitoring the health of your franchise. This helps ensure it is legally compliant, accurate and fit for purpose utilising industry leading best practices.