Legal

While the business should be simple, the system should not. You may attract franchisees by your unique concept or name, but to be successful, franchisees need systems that allow them to operate the business and stay ahead of the competition. You need to not only develop a prototype, but also document the systems, recipes, procedures, marketing techniques, and the like that you will provide to your franchisees, and develop training programs that enable franchisees to replicate your success.

Early on shareholders are often ebullient about business prospects and their ability to always reach agreement. Personal or economic stress can dampen that spirit. Areas of contention include unequal compensation, added capital contributions, debt guarantees, vacation days taken, whether a position on the board is guaranteed. Business divorces, like other divorces, can be expensive and acrimonious. Mitigate risks by documenting your agreements in the form of a shareholder control agreement.

It may be tempting to selectively enforce non-compete covenants against some employees but not others. However, selective enforcement can be used as a defense by a former employee. Uniform and vigorous enforcement of non-compete agreements sends a message to existing employees that such agreements will be enforced if violated. That in turn deters future violations.

The reality is there’s no better time than when relationships are strong and positive to develop an agreement that protects the partnership against unforeseen changes down the road. If a shareholder decides to leave the partnership, a buy/sell agreement can provide liquidity, establish a value for the stock, and offer restrictions on stock transfer in a closely held company. It requires thought and discussion, but can be a lifesaver for a company if done properly.

Trust begins to erode in a business relationship when one partner has sole control of the finances and limits the other partners’ access to information. Even if nothing dishonest is taking place, suspicion and conflict frequently ensue when an owner has reason to believe information is withheld or manipulated.  Each partner should have ready access to all business and financial information, including bank account and payroll records, vendor contracts, accounts receivable and payable, customer lists and employee data.