Zarco Einhorn Salkowski, P.A. Zarco Einhorn Salkowski, P.A.2026-06-26T17:53:58Zhttps://www.zarcolaw.com/feed/atom/WordPress/wp-content/uploads/sites/1404858/2020/01/cropped-zarco-siteicon-32x32.pngOn Behalf of Zarco Einhorn Salkowski, P.A.<![CDATA[What Franchisees Need To Know About Personal Guarantees in Franchising]]>https://www.zarcolaw.com/?p=646782026-06-25T17:27:57Z2026-06-25T16:56:50Zbefore you sign your franchise agreement, you need to understand exactly what a personal guarantee is, what it means for your financial life, and why franchisors require them.
Stay with me here, as this isn't a minor legal formality.
It's one of the most consequential commitments you'll make in this entire process.
Key Takeaways
Personal guarantees in franchising are not optional, and they are not a formality.
They are one of the most serious financial commitments a franchise buyer will make.
That’s because when you sign a personal guarantee, you're agreeing that your personal assets — savings, home and some of your investments, can be used to satisfy business debts if your franchise fails.
The reason today’s franchisors require personal guarantees is because they want financial accountability from the people operating under their brand. That's understandable, but knowing what you're agreeing to is your responsibility, not theirs.
It should be noted that the details inside a personal guarantee matter just as much as the guarantee itself. Personal guarantees in franchising can sometimes be negotiated — capped at a dollar amount, limited in scope, or reduced after years of successful operation.
In addition, spouses may be required to sign.
Furthermore, continuing guarantee obligations can survive a franchise sale if you don't secure a formal written release.
None of this is hidden, but most buyers don't ask the right questions until it's too late.
So, before you sign your franchise contract, hire a qualified franchise attorney.
Above all, read the guarantee language carefully. Know exactly what you're on the hook for — and for how long.
What a Personal Guarantee Actually Is
A personal guarantee is a legal agreement that makes you personally responsible for your franchise business's debts and obligations. It removes the financial protection that a limited liability company or corporation normally provides.
With that being said, most new franchisees form an LLC or a corporation to own and operate their franchise. That structure is designed to separate your business liability from your personal assets. But a personal guarantee can eliminate that separation.
Translation: If your franchise business fails and can't meet its financial obligations, the franchisor — and in some cases your lenders, can come after your personal assets. That means your savings. Your home. Your personal bank accounts. Maybe some of your investments.
This is not a hypothetical risk. It's a contractual certainty if things go wrong.
Why Are There Personal Guarantees in Franchising?
Franchisors require personal guarantees because they're taking a risk on you. They're licensing their brand, their systems, and their intellectual property to someone who has never run this type of business before. In exchange, they want financial accountability.
It's a reasonable position from their side of the table. But you need to understand what you're agreeing to before you sign.
The personal guarantee in franchising also applies to leases.
That’s because many franchisors require franchisees to sign leases for retail or commercial space. The franchisor often negotiates the lease on behalf of the franchisee. But when you sign the personal guarantee on that lease, you're on the hook if the business shuts down and rent goes unpaid.
That liability can run for years.
Spouses and Co-Signers May Need to Sign Them Too
Here's something many prospective franchisees don't expect. Franchisors sometimes require a spouse or partner to sign the personal guarantee as well.
This is more common than people realize. If significant marital assets exist, for example, a jointly owned home, joint savings accounts, or shared investments, the franchisor may insist that the spouse sign too.
This protects the franchisor's ability to collect in the event of a business failure.
Now, before you agree to this, your spouse needs to understand what they're signing. This decision affects your entire household.
Can a Personal Guarantee Be Negotiated?
This is the question everyone wants answered. The short answer is sometimes.
Experience shows that some franchisors will negotiate the terms of a personal guarantee. They may agree to cap the guarantee at a specific dollar amount. They may agree to a sunset provision that reduces your personal liability after a certain number of years of successful operation. They may limit the guarantee to a specific set of obligations rather than all obligations under the franchise agreement.
But not every franchisor will move on this.
Large, established systems with hundreds of franchisees rarely negotiate personal guarantee language. But smaller systems or franchisors who are actively building their network may have more flexibility.
The only way to find out is to ask. And to ask effectively, you need an experienced franchise attorney like the ones at [nap_names id="FIRM-NAME-1"] representing you.
What Happens to the Personal Guarantee If You Sell Your Franchise
Many franchisees assume that selling their franchise ends their personal guarantee obligations. This isn't necessarily true.
For instance, if the buyer you've found defaults on the franchise agreement after the sale, you may still have exposure depending on how the guarantee was written and whether the franchisor agreed to release you from it. This is called a "continuing guarantee," and it's more common than franchisees expect. This is something you need to check on.
That means verifying that the personal guarantee will be formally released in writing. Don't assume. Get it documented. Your franchising lawyer can help with this.
What You Should Do Before Signing Your Franchise Agreement
Personal guarantees are not optional. Every major franchisor includes them, and you will not get the franchise you want to own without signing one.
With that in mind, what you can do is go into the agreement with a clear understanding of what you're accepting. Know the scope of the guarantee. Know whether your spouse is being asked to sign. Know what happens to your obligations if you exit the system.
And before you sign anything, be sure to hire a qualified franchise attorney. A general business attorney is not enough here. You need someone who reviews franchise agreements regularly and understands how personal guarantee language plays out in real disputes.
The personal guarantee in franchising is one of the most serious legal and financial commitments in the entire franchise process. You need to treat it that way.]]>On Behalf of Zarco Einhorn Salkowski, P.A.<![CDATA[Do franchisors have any obligation to help franchisees during difficult financial times?]]>https://www.zarcolaw.com/?p=646632026-06-17T21:01:11Z2026-06-17T21:01:11Z are notoriously innovative and tough. Not only are we able to get work done but we have also kept the economy moving forward during times when most financial analysts expect a downturn due to financial strain. From pushing through the worst of the pandemic to navigating supply chain disruptions due to global conflict, entrepreneurs throughout the country continue to push through the worst and build strong businesses.
Even so, it is important to remember everyone has a tipping point. Add current high inflation rates to these continued struggles and we are starting to see a negative impact on businesses with a drop in consumer spending. Financial experts are pointing to multiple red flags that signal this drop could be significant – and even some of the most stable businesses like well known franchises are starting to feel the impact.
Which franchises are facing financial strain?
Those that focus on trends or one-time experience offerings are already reporting financial strain. In contrast, those that offer essential needs and receive support from franchisors will likely continue to find success in 2026 and beyond. When it comes to essential needs, think franchises that focus on education, food and health care needs as well as home services like plumbing and HVAC. During times of uncertainty, consumers often prefer to return to businesses that provide predictable products. This can position franchises for success even as the market shifts.
Do franchisors owe franchisees aid during a recession?
As consumers cut back on spending, franchisees might wonder if franchisors will help them weather tough financial times. The answer varies depending on the language within the franchise agreement. Some franchise agreements offer support while others may not. In fact, some may even set the franchisor up for continued financial gain even when the franchisee reports no profit. This is because these agreements may be worded to allow the franchisor to receive royalties. This generally does not take profits into account but is instead based on percentage of gross sales.Franchisees that find themselves struggling during a recession or other financial difficulties have options. In addition to reviewing the language of the franchise agreement it can also help to negotiate with the franchisor. In some cases, the following remedies may be available:
Deferred royalties
Temporary reduction of fees
Marketing adjustments
Negotiations with suppliers
Inadequate support from franchisors can devastate franchisees. Careful review of the franchise agreement and strategic negotiations can offer relief and a path forward. Franchisees that find themselves working through these types of issues are wise to reach out to legal counsel with experience in this complicated area of law. Our attorneys offer free consultations to help provide guidance during these difficult times. ]]>On Behalf of Zarco Einhorn Salkowski, P.A.<![CDATA[Likely franchisor updates in 2026]]>https://www.zarcolaw.com/?p=645672026-06-08T19:08:37Z2026-06-08T19:08:37Z up with the demands of clients is an important part of success for any business, including popular franchises. Major franchise systems succeed not only because they implement these changes but because they evolve without leaving franchisees to manage change alone. Some of the areas that big brands need to refresh for continued success through 2026 and beyond likely include technology updates and a refresh in the guest experience. To increase the odds of successful implementation of any of these changes, these rollouts generally include clearly defined standards, tools and training as well as accountability so the brand remains consistent while franchisees protect profitability.
Technology updates that reshape the franchise model
Modernization is not limited to new menu boards or product offerings. When it comes to franchises that operate in the restaurant business, many systemwide initiatives involve digital ordering, loyalty programs, delivery integration, cybersecurity controls and data reporting. These changes can improve throughput and customer satisfaction but they can also introduce new vendor relationships, data handling obligations and operational risk.Well-run franchises generally support franchisees through a coordinated implementation approach. After the rollout, ongoing support may include performance dashboards, help-desk coverage and compliance audits. This matters because franchise agreements usually require franchisees to adopt system changes and failure to implement can become a contractual default. A disciplined support model reduces disputes by aligning expectations, timelines and documentation.
Many shifting to focus on hospitality
In addition to tech updates, many franchises are shifting to a renewed focus on the customer expeirence. To stay competitive when dealing with markets like fast food, leaders are attempting to provide both a quick meal and good service. Franchises throughout the country are working towards this goal, looking at using influencer marketing and social media to draw customers in while also updating training to help better ensure staff provides a more friendly atmosphere and positive experience for customers.
What does this mean for current and future franchisees?
Franchisees are wise to prepare for continued modifications and protect their interests by carefully reviewing proposed changes. Get information about timelines, costs, training and expected results. It can also help to review the franchise agreement and brand standards, then compare the requested updates with their unit’s current performance and operational capacity. In the event of concerns, document all discussions, request guidance in writing and seek advice from an experienced franchise attorney before committing to major investments.Franchise evolution is inevitable. The difference between disruption and progress is often the quality of the rollout. When large franchisors invest in training, vetted vendors, realistic timelines and compliance-focused guidance, franchisees can implement changes with less risk and better returns while the brand continues to modernize at scale. When franchisees are concerned the changes are outside of the scope of the franchise agreement, legal counsel can provide guidance and help protect the franchisee’s interests. We offer free consultations to review the situation and help determine the best path forward. ]]>On Behalf of Zarco Einhorn Salkowski, P.A.<![CDATA[5 Warning Signs Your Franchise Agreement Is Too One-Sided]]>https://www.zarcolaw.com/?p=644552026-06-01T15:46:45Z2026-06-01T15:40:32Zit's written by the franchisor's legal team.
That last part matters.
Because a franchise agreement is drafted to protect the franchisor. That's not inherently wrong. But there's a difference between a balanced agreement that protects the brand and one that leaves you exposed at every turn.
Key Takeaways
Franchise agreements are written by franchisors, for franchisors. That's the starting point every prospective franchisee needs to accept. The 5 warning signs covered here include:
Predatory termination clauses
Restrictive transfer rights
Vague territory protections
One-sided renewal terms
Unfair dispute resolution language.
Now, those things don't automatically mean a franchise system is bad. They mean you’re potentially carrying more risk than you should be. Plus, unbalanced agreements compound over time.
Seeing that, the most important step you can take is hiring a franchise attorney before you sign anything. Not a general practice attorney. A franchise attorney.
The fact is that these agreements are long, dense, and full of language that requires specialized legal knowledge.
But the best part is that a qualified franchise attorney will tell you what's negotiable, what's boilerplate, and what's a genuine dealbreaker.
Finally, that legal review costs a fraction of your total investment. Skipping it is one of the most expensive mistakes a franchise buyer can make.
The 5 Warning Signs You Need to Watch For on Your Franchise Agreement
1. The Termination Clause gives the franchisor too much power.
Every franchise agreement includes termination language. That's standard.
What's not standard — or shouldn't be, is a clause that lets the franchisor terminate your agreement with little notice and minimal justification.
Some agreements allow termination for vague reasons like "conduct detrimental to the brand." That phrase can mean almost anything.
So, if the franchisor decides they don't like how you're running your business, that language gives them enormous leverage.
So ask your franchise attorney to walk you through every termination trigger in the agreement. Pay close attention to how many days of notice you'd receive. Pay attention to whether you get a chance to fix the problem first.
2. Transfer Rights are loaded with landmines.
One of the biggest financial opportunities in franchising is the ability to sell your business someday. But that opportunity can disappear fast if your transfer rights are buried under unreasonable conditions.
Watch for agreements that give the franchisor the right of first refusal to buy your business. That sounds reasonable, but in practice, it can suppress the sale price or scare off buyers entirely.
Also watch for excessive transfer fees, approval requirements that are purely discretionary, and training obligations (and the cost of them) for buyers that are so burdensome they kill deals before they start.
If you can't exit cleanly, you don't really own what you think you own.
3. Territory Protection is vague or non-existent
This one is more common than it should be.
Some franchisors grant you a defined territory. Others grant you something that looks like a territory but is full of exceptions. The franchisor might reserve the right to sell through alternate channels like e-commerce, wholesale, and/or other locations within or near your area.
In a nutshell, if your territory isn't precisely defined and legally protected, a competitor could show up in your backyard. That competitor might even be another franchisee from the same system.
With that in mind, make sure you read the territorial language carefully.
Have your attorney look for exceptions, carve-outs, and reservation clauses. If the territory section is vague, ask the franchisor to clarify in writing. If they won't, that tells you something.
4. Renewal Terms favor the house. Not you.
You build the business. You grow the customer base. Then renewal time comes around.
Some agreements may let franchisors impose entirely new terms at renewal. That could mean higher royalties. It could mean updated buildout requirements that cost you six figures. It could even mean signing the current version of the franchise agreement, which may be substantially different from what you originally signed.
The way we look at it is that you've invested years and real money into that business. The renewal terms should reflect that.
In essence, if the agreement doesn't give you reasonable renewal rights on fair terms, you're essentially operating under a short-term lease with no guarantee the landlord keeps you on.
5. The Dispute Resolution section in your franchise agreement can lock you out.
When something goes wrong between a franchisee and a franchisor, how disputes get resolved matters enormously.
Some agreements require arbitration — which can be fine. But the details matter. Where does the arbitration take place? If you're in Florida and the agreement requires disputes to be resolved in the franchisor's home state, that's an immediate financial and logistical disadvantage.
Also look at whether you're waiving your right to a jury trial. Look at whether class action participation is prohibited. Look at whether the agreement limits the types of damages you can seek.
These provisions don't seem important when everything is going smoothly. They matter a great deal when things go wrong. Have your franchise attorney explain them to you.
The Bottom Line
A franchise agreement is a long-term legal commitment. Most run 10 years or more. You're going to live inside that document.
That said, one-sided agreements don't always signal a bad franchise opportunity. But they do signal that you need expert eyes on that contract before you sign.
That’s why you need to hire an experienced franchise attorney. Not a general business attorney. A franchise attorney. This is a specialized area of law, and the nuances matter.
The right attorney won't just flag problems. They'll tell you what's negotiable, what's standard, and what's a genuine red flag.
And that clarity is worth every dollar you spend on it.]]>On Behalf of Zarco Einhorn Salkowski, P.A.<![CDATA[Franchisees beware: That DoorDash order may cost you more than you think]]>https://www.zarcolaw.com/?p=644162026-05-18T19:59:24Z2026-05-18T19:49:21Z business owners know that their business needs to evolve with the market. This holds true in most industries, but few can change as frequently as the restaurant business. One of the most recent evolutions is the growth of delivery within almost all types of dining establishments. From fancy restaurants to drive through staples, the use of delivery services like DoorDash, Uber Eats and Grubhub have become an important part of maintaining their customer base.
The use of these third party delivery services boomed during the pandemic and continues to gain momentum. These services can seem like pure upside. More orders, wider reach and stronger brand visibility. For many franchisees, these types of sales also bring a quiet margin squeeze that gets worse over time. The pressure often starts with franchisor fees tied to delivery revenue and can accelerate when franchisees raise delivery pricing to cover those fees.
Where the margin pressure begins
Third party delivery services typically charge the restaurant a commission or service fee. The franchisor may also charge royalties on sales, including through delivery services. The exact amount and structure to these payments depends on the franchise agreement. Some take a percentage of the overall cost, which could include any addition made to the price of items to help compensate for the delivery fee. Each layer reduces the net profits.
Why delivery menu pricing often runs higher
As noted, many franchisees respond by setting a higher delivery menu price than the in store price. The goal is straightforward: recover the platform commission plus any franchisor percentage fees without raising base pricing for dine in guests. The reality can be sobering: a larger cut to the franchisor.
Franchise agreement language can change the math
The biggest surprise tends to come from how the franchise agreement defines “gross sales” or “gross revenue.” Some agreements capture all amounts charged to the customer, including delivery fees, service charges, packaging fees and convenience fees. Others exclude pass through amounts, or define delivery fees as non revenue items.Depending on the language of the agreement, a franchisee can end up paying royalties on the very markup added to cover delivery costs. That can turn a defensive pricing move into an additional franchisor fee base.These types of arrangements can result in massive loss for franchisees and are not uncommon. This is one of many issues in a recent case involving Franchisee Gold Coast against Franchisor Jack in the Box.
Key takeaways for franchisees
DoorDash, Uber Eats, Grubhub and other third party delivery service providers can drive volume, yet the economics depend on layered fees plus contract definitions. Franchisees should move forward with such agreements cautiously. A careful read of the franchise agreement can mean the difference between profitable growth and profit leakage.]]>On Behalf of Zarco Einhorn Salkowski, P.A.<![CDATA[Navigating Commercial Real Estate Litigation: Protecting Your Franchise Location Rights]]>https://www.zarcolaw.com/?p=644132026-05-15T14:59:17Z2026-05-15T14:58:27ZKey Takeaways of Navigating Commercial Real Estate Litigation
Your lease is a legal document, not a formality. Most franchisees spend more time reviewing the FDD than their commercial lease.
The lease governs your location rights, renewal options, and financial exposure in a dispute. That said, you need to remember to give it the same scrutiny you give everything else you sign.
It should be noted that your franchisor is not your advocate in a landlord dispute. Franchisors have their own relationships with landlords and their own system-level priorities.
Translation: When a real estate conflict develops, their interests and yours can diverge fast. You need independent, highly-qualified legal counsel — someone who represents you, not the brand.
What’s my point?
The costliest mistakes happen before litigation starts. Franchisees miss notice deadlines. They sign amendment language that waives rights they didn't even know they had.
So, by the time a franchise attorney gets involved, the damage is done.
Tip: If a dispute is developing, you need to get qualified legal assistance early.
Finally, experience shows that location conflicts between franchisees and landlords are more common than most people think — and more damaging than most people anticipate.
The Lease Is a Business Asset. Treat It That Way.
Franchisees are told to focus a lot of their due diligence on the Franchise Disclosure Document (FDD). That's appropriate. But the commercial lease deserves equal scrutiny.
That’s because your franchise business location is not just a place to operate. It's a foundational business asset. The lease governs how long you can stay, what you can spend, and what happens if things go sideways. A bad lease can undermine even the most profitable franchise operation.
Where Franchise Location Conflicts Actually Come From
In my experience, the most common friction points fall into a few categories.
Property maintenance is the first.
For instance, who is responsible for HVAC repairs? What about structural issues? Parking lot conditions? These questions seem straightforward until something breaks and the landlord's interpretation of the lease differs from yours.
The fact is, disputes over maintenance responsibilities can drag on for months and cost franchisees significant money in lost revenue, out-of-pocket repairs, or both.
Lease renewal is the second thing. This is where things can get particularly painful.
In this case, a franchisee builds a successful location over 3 or 4 years. The renewal date approaches. Suddenly, the landlord wants a significant rent increase. Or wants to restructure terms. Or simply isn't cooperative about the timeline.
That means if your franchise agreement requires you to maintain that location, you're negotiating from a position of weakness.
Unauthorized alterations are the third issue.
Franchisors frequently mandate remodels or equipment upgrades. Sometimes those changes conflict with lease restrictions on alterations. Now you're caught between two contracts; your franchise agreement and your lease, and neither party is willing to absorb the cost.
What Happens When Disputes Escalate? Commercial Real Estate Litigation.
Most landlord-franchisee disputes start as conversations. A phone call. An email exchange or two. A notice letter.
Some get resolved there.
Others don't.
I know that’s a lot to take in but hear me out. Because when disputes escalate to litigation, the stakes change dramatically.
Franchisees can face claims of lease default, threats of eviction, or demands for damages. And landlords have been known to use litigation as leverage to force renegotiation.
Either way, a franchisee without qualified legal representation is at a serious disadvantage.
This is where having a franchise attorney with commercial real estate litigation experience matters enormously.
But not just any business attorney.
You need someone who understands the intersection of franchise agreements, lease obligations, and the litigation dynamics that come with commercial real estate disputes specifically.
Fortunately for you, [nap_names id="FIRM-NAME-1"] handles these situations regularly.
Their commercial real estate disputes practice covers the full range of conflicts franchisees can encounter — from lease negotiation breakdowns to contested maintenance obligations to landlord interference with franchise operations. They work with franchisees who need to protect their location rights when conversations stop working and legal action becomes necessary.
The Pre- Commercial Real Estate Litigation Mistakes That Cost Franchisees
If I've learned one thing watching franchisees navigate real estate disputes, it's this: most mistakes happen before the franchising attorney gets involved.
Franchisees respond to landlord demands without legal review. They sign amendment language that waives important rights. They miss notice deadlines in the lease. They assume their franchisor will step in and advocate for them.
That last assumption is the most dangerous.
Your franchisor has its own relationship with the landlord. They have a system to protect. Their interests and yours don't always align when lease disputes arise. In some cases, franchisors have declined to support franchisees in real estate disputes altogether.
With those things in mind, you need your own counsel. Not theirs.
Protect Your Franchise Location Before a Problem Develops
This may sound obvious, but the best time to think about commercial real estate litigation is before you're in litigation. Here are the steps to take:
Review your lease with a franchise attorney before you sign it
Understand the renewal provisions
Understand the maintenance language
Understand what happens if the franchisor requires alterations your landlord might resist
Document every communication with your landlord
Keep records of maintenance requests, repair timelines, and any verbal agreements
Know your notice requirements
FYI: Most leases have strict deadlines for exercising renewal options or raising disputes. Missed deadlines can forfeit rights you didn't even know you had.
And if a dispute is already developing and the landlord is being unresponsive, if renewal terms look unreasonable, or you're getting threatening correspondence — don't wait. Get qualified legal help early.
The Bottom Line
Your franchise location is likely your largest operational asset. It took months to find. It cost significant money to build out. It's the foundation of everything your business does.
Protecting it requires the same diligence you bring to every other part of your franchise investment.
Real estate disputes don't resolve themselves. The franchisees who protect their location rights are the ones who take the threat seriously, and get the right legal help early.]]>On Behalf of Zarco Einhorn Salkowski, P.A.<![CDATA[The “Item 19” Reality Check: What the Numbers Don’t Tell You]]>https://www.zarcolaw.com/?p=643492026-05-01T18:41:04Z2026-05-02T08:45:48ZFranchise Disclosure Document (FDD) and flip straight to the Item 19 numbers.
There are lots of revenue figures and maybe a breakdown by quartile. You feel you have enough data to at least start building a business plan.
Slow down. Read this article first.
On Building Your Franchise Around Item 19 Numbers
Before you build a business plan around those numbers you see on the Item 19 portion of the FDD, you need to understand something important. Item 19 is one of the most misunderstood documents in all of franchising.
Now, a franchise attorney can confirm that it's legally compliant. What they can't do is tell you whether those numbers make sense for you in your unique situation.
That's a different conversation entirely.
What Item 19 Actually Is
The Financial Performance Representation, or FPR, is an optional disclosure that franchisors can include in their FDD. Not all franchisors provide one. When they do, the format varies widely.
For instance, some franchisors show gross sales, while others show net income. Some break data down by quartile. Others present a single average figure and call it a day.
That being said, here's what the law requires: the data must be accurate, substantiated, and presented without material omission. Your attorney will verify that the numbers in Item 19 are legally defensible.
But legal compliance and business viability are two entirely different things.
The "Average Gross Sales" Problem
The most dangerous number in Item 19 is the average.
After all, it sounds straightforward.
Just add up the sales figures from all reporting locations, divide by the number of locations, and you have your benchmark.
Except you don't.
The fact is that averages hide the spread.
For example, if one location generates $2.1 million per year and nine struggling locations generate $400,000 each, the average is $570,000. That number tells you almost nothing useful about what you'd actually earn yourself. Yet many would-be franchisees do just that. Big mistake.
What you really need is the full distribution of performance across locations.
More specifically, you need to know how many locations fall below the average.
In fact, experience shows us that in a good number of franchise systems, sometimes the majority of locations tend to underperform the mean. That's not manipulation. That's just math. But if you're planning your business around hitting the average, you need to understand the odds you're facing.
That’s why you need to ask your franchise attorney to flag which locations were excluded from the data.
More specifically, new units often get left out. Closed units frequently disappear. What remains may be a curated snapshot rather than a complete picture.
The Hidden Cost Problem In Item 19 Numbers
Gross sales are not profits. That seems obvious.
But many prospective franchisees, excited by a strong revenue figure, make the mistake of reverse-engineering their net income from the top line without accounting for the full cost structure.
Given that, you need to consider what typically sits between gross sales and actual take-home income.
In particular, royalty fees usually run 5 to 9 percent of gross revenue. Marketing fund contributions add another 2 to 4 percent. Then there's rent, which in a retail or food service model can consume 10 to 15 percent of sales on its own. Labor, cost of goods, insurance, utilities, debt service on your initial investment. Add it all up.
By the time you've worked through a realistic P&L, a location doing $750,000 in gross sales can sometimes produce very little actual income for the owner.
Bottom line:
Item 19 won't show you that math. It wasn't designed to.
Working Capital Is the Number Most People Miss
Here's where prospective franchisees get into serious trouble. They fund the startup. They cover the franchise fee, the buildout, the equipment, the initial inventory. They open the doors.
Then they discover that the cash flow in the early months of a small business can be brutal.
That’s why most franchise systems require 3 to 6 months of working capital as a cushion. Some of the more honest franchisors disclose this expectation clearly. Others bury it in general language. Regardless of what the FDD says, the real-world requirement is often higher than projected.
Why?
Because sales ramp up slowly. Fixed costs never do.
In reality, your rent starts on day one, your staff needs to be paid, and your royalties kick in immediately.
But customer volume takes months to build. The gap between your expenses and your revenue during that ramp-up period is your working capital drain. If you haven't funded it adequately, you're in a cash crisis before your business has found its footing.
Unfortunately, Item 19 cannot warn you about this. The numbers it shows are from established locations. Your first twelve months probably won't look like their numbers. Plan accordingly.
What to Do With The Item 19 Numbers
None of this means Item 19 is worthless. Used correctly, it's valuable.
First, start with the validated data. Have your franchising attorney confirm the legal compliance and identify any gaps in the reported dataset. Understand who was included and who wasn't.
Then go further. Pull the list of current franchisees from Item 20 of the FDD. Call them. Ask about their actual costs, their ramp-up timeline, and whether their experience matched what Item 19 suggested.
And be sure to ask them specifically about working capital needs. Ask what they wish they had known before opening.
Next, build your own proforma from the bottom up. Don't start with the gross sales figure and work backward. Start with realistic cost assumptions and stress-test multiple revenue scenarios.
Finally, engage the services of a franchise attorney early.
Not just to confirm legal compliance, but to help you understand what questions to bring to a financial advisor and what due diligence gaps need closing before you sign.
The Number That Really Matters
Item 19 shows you what franchisees have sold. It doesn't show you what they've kept. It doesn't show you what they've struggled through in the early months. It doesn't show you the locations that didn't make it.
A legally compliant Item 19 and a financially sound investment are not the same thing.
The difference comes down to how thoroughly you perform your due diligence before you sign.]]>On Behalf of Zarco Einhorn Salkowski, P.A.<![CDATA[Franchisees: Options if franchisor opens new unit in your territory]]>https://www.zarcolaw.com/?p=643472026-04-29T18:53:43Z2026-04-29T18:53:43Z recent case involving Applebee’s franchisees seeking legal relief after the franchisor began opening dual-brand Applebee and IHOP locations within existing areas of exclusivity is catching media attention. The franchisees argue that the franchisor is cutting into their profits by opening these combination units within their territory.
The problem is not a new one. Franchisees have experienced similar issues in the past. Those who find themselves in a similar situation are wise to take action to protect their interests. Before choosing a response, it is important to confirm the core facts. Review the language in the agreement about the territory and check to see where the new unit falls within that area. Document the franchisor notice process and the timeline for the new unit as well as the projected competitive overlap.With this information gathered and ready, franchisees can use the legal system to help with two main goals: protect their franchise while stopping the opening of the new unit.
Injunction to stop franchisor from ending franchise agreement
Some franchisors respond to a territory dispute with default notices, nonrenewal threats or termination notices. An injunction may be the fastest tool to prevent termination while the underlying dispute proceeds.Courts may review various factors, but four common examples often include: likelihood of success on the merits, irreparable harm, balance of hardships and public interest. In franchise cases, irreparable harm arguments often focus on loss of goodwill, customer relationships and the inability to recapture market position. Contract provisions on termination, cure periods, notice requirements, good faith and fair dealing can play a central role in these decisions.The request for relief through an injunction must be supported by evidence, not conclusions. A franchisee should expect the franchisor to fight back. Prepare careful documentation to support your case.
Injunction to stop opening of the new unit
If a new unit is imminent, an injunction can target the opening itself. This remedy is fact intensive. Some agreements expressly allow encroachment through alternative channels. Some provide exclusive territories with defined boundaries. Others disclaim exclusivity entirely. Review your arrangement so you have a clear understanding of what is and is not allowed. Look for clear territory language, express exclusivity, a defined radius, a noncompete covenant running against the franchisor or documented precontract representations to strengthen the claim.
Other options
Although it is wise to move forward and prepare for potential litigation, this is only one path towards a resolution. Encroachment within the franchise world is a serious, and well studied, issue. Many disputes resolve through contract interpretation, negotiated adjustments and financial offsets. The best path depends on timeline, contract leverage, local franchise statutes and the franchisee relationship goals.Before choosing a strategy, confirm what the agreement actually promises, then sequence the response to protect rights without triggering avoidable default claims. This could include the following pathway:
Issue a formal notice of breach, request cure and take steps to reserve rights
Demand documents on site approval, territory analysis and system exceptions
Propose remedies such as relocation, delayed opening, royalty relief, marketing credits and boundary adjustment
Evaluate arbitration clauses, venue clauses and injunction carveouts
Consider a measured public-facing plan to protect goodwill without defamation risk
After these steps, decide whether to pursue emergency relief, a standard breach claim, a statutory franchise claim where applicable or a business resolution.The opening of a second unit inside a franchisee territory can create immediate damage and long term brand disruption. The franchisee options turn on contract language, proof of encroachment and actual harm. Early documentation, disciplined compliance and timely legal action create the best position for either injunction relief or a negotiated solution.Those who are considering action can reach out to our firm, we offer free consultations and can help you get a better understanding of your options. ]]>On Behalf of Zarco Einhorn Salkowski, P.A.<![CDATA[What You Need to Know About Non-Compete Clauses After You Leave a Franchise]]>https://www.zarcolaw.com/?p=643402026-04-28T17:55:10Z2026-04-24T20:32:09ZWhat Non-Compete Clauses Actually Say
Every franchise agreement contains them. They go by different names — post-term restrictive covenants, non-solicitation clauses, competitive restrictions. The language varies. The intent doesn't.
That said, the franchisor's goal is simple: prevent you from competing against them after you leave. I guess you can’t blame them.
With that in mind, here's what a typical clause looks like in practice.
You exit the system. For the next two years, you cannot operate a "similar" business within a 25-mile radius of your former location. Sometimes the radius is bigger. Sometimes the time period is longer. Sometimes "similar" is defined so broadly it covers almost any related business you could think of.
That's a serious restriction. Especially if franchising, or that specific industry, is what you know best.
Why Franchisors Write Them This Way
Let's be fair for a moment.
Franchisors invest heavily in training their franchisees. They share proprietary systems, customer databases, operational playbooks, and trade secrets. The argument for a non-compete is legitimate on its face. They don't want to train their future competition.
Understood.
But there's a gap between protecting legitimate business interests and writing clauses so aggressively they functionally trap you. And many franchise agreements can cross that line.
The Enforceability Question in Non-Compete Clauses
Here's the critical thing most franchisees don't know when they sign.
Non-compete clauses are not automatically enforceable.
Experience tells us that courts across the country look at these clauses with real scrutiny. Judges tend to ask specific questions.
Is the time restriction reasonable?
Is the geographic scope reasonable?
Does the restriction go beyond protecting a legitimate business interest?
When the answer to any of those questions is "no," courts do have the power to limit or completely void the non-compete.
California, for example, renders most non-competes unenforceable as a matter of state law. North Dakota and Oklahoma have similar protections. Even in states that generally enforce these clauses, courts have pushed back on restrictions they consider excessive.
NOTICE: As of July 1, 2026, the State of Virginia has enacted a law prohibiting non-compete clauses in franchise agreements entered into after that date. This marks a significant shift in franchise law and further highlights how enforceability depends heavily on state-specific legislation.
Of course, the legal landscape is not uniform. Where your franchise was located matters enormously.
Finally, which state’s law applies to your agreement is also important, since it’s governed by the terms outlined in your franchise agreement.
The "Blue Penciling" Reality
Some courts don't just void an unreasonable non-compete. They rewrite it.
This is called "blue penciling."
In this case, a judge decides the two-year restriction should really be one year. Or the 25-mile radius should be 10 miles. The clause survives, just in a modified form.
That sounds like a partial win for the franchisee. Sometimes it is. But you still end up restricted. You still can't operate freely. And you still went through expensive legal proceedings to find out where the lines are.
The better strategy is understanding what you're signing before you sign it — not litigating it on the back end.
What Franchisees Often Miss
There are a few specific things you may miss that are worth highlighting.
First, the definition of "competing business" is often written in the franchisor's favor. Deliberately so.
For example, if you ran a fitness franchise, some franchise agreements could theoretically prevent you from opening any fitness-related business — even one that looks nothing like your former franchise concept.
Interestingly enough, the non-compete often applies even if the franchisor terminated you wrongfully.
Think about that. You get pushed out unfairly, and the clause still runs. Courts don't always agree with that outcome, but getting there takes a legal fight.
And finally, some agreements extend non-compete obligations to your immediate family members. Spouses. Adult children. That's not common, but it exists. Read carefully.
What You Should Do
This isn't about scaring you away from franchising. It's about going in with your eyes open.
Before you sign any franchise agreement, have a qualified franchise lawyer review the post-term restrictions specifically. Understand exactly what you're agreeing to. Ask the franchisor to negotiate the scope if it feels excessive. Some will. Some won't. Their response often tells you something.
And if you're already in a dispute involving a non-compete…whether you've been terminated or you're planning your exit, get legal counsel before you make any moves.
The clause you ignored on page 47 of your franchise agreement may be the most important sentence in the whole document.
Don't find that out the hard way.
Frequently Asked Questions
Can a franchisor enforce a non-compete against me even if they terminated my franchise without good cause?
Possibly. Many agreements are written so the non-compete runs regardless of who ended the relationship or why. Some courts have refused to enforce these clauses in wrongful termination situations. It depends on your state's laws and the specific facts of your case.
What happens if I violate a non-compete clause after leaving my franchise?
The franchisor can sue you for breach of contract and seek an injunction to shut down your new business — sometimes before you've had a full hearing. They can also pursue monetary damages. Don't assume the franchisor won't act. Many do.
Can I negotiate the non-compete terms before I sign the franchise agreement?
You can try. Some franchisors are more flexible than they let on, especially if you're a strong candidate. The time to negotiate is always before you sign. Never after you’ve sent the paperwork to franchise headquarters.]]>On Behalf of Zarco Einhorn Salkowski, P.A.<![CDATA[What are options for resolution when a franchisee has a dispute with a franchisor?]]>https://www.zarcolaw.com/?p=642612026-04-06T19:13:25Z2026-04-06T19:13:25Z a franchise agreement is working, it can feel like a well-oiled machine — clear standards, steady support and a shared goal of growing the brand. But when a dispute arises between a franchisee and a franchisor, that momentum can stall fast. Questions about fees, territory rights, marketing obligations, supply requirements, performance standards or renewal terms can quickly shift from frustrating to financially serious.
The good news is that most franchise disputes do not start — or end — in a courtroom. Franchise agreements and franchise laws often outline practical paths for resolving conflict, and choosing the right approach early can protect your business, preserve the relationship and reduce cost and downtime. In this post, we will walk through the basic resolution options franchisees typically have, from informal negotiation to mediation, arbitration and litigation, along with potential remedies.
Option 1: Information negotiations
In an informal negotiation between a franchisee and a franchisor, the parties typically start by identifying the specific issue, clarifying what the franchise agreement and operating standards require and separating facts from assumptions. Ideally, each side will state its goals and constraints in active, business-focused terms. It is also important to share relevant documents and performance data to keep the discussion grounded. These discussions should also explore options that address underlying interests, which may include revised training, a corrective action plan with clear deadlines, temporary fee relief, marketing support, territory adjustments where permitted or an agreed interpretation of disputed provisions. The parties can then test proposals against practical realities, document any commitments in writing and set measurable checkpoints to confirm follow-through. If a resolution is not possible, it is helpful to review next steps, such as escalation to senior leadership or mediation, while preserving the working relationship and limiting disruption to customers.
Option 2: Mediation, arbitration and litigation
If negotiations fail, the parties may move through mediation, arbitration and litigation in escalating order depending on what the franchise agreement requires. In mediation, a neutral mediator facilitates negotiation and helps both sides identify interests, test settlement options and draft a voluntary resolution, but the mediator does not impose a decision. Many find mediation a favorable starting point due to its cost and privacy. If mediation fails or the contract mandates it, the parties may proceed to arbitration, where an arbitrator (or panel) hears evidence and arguments and then issues a decision that is usually binding and enforceable, with limited grounds for appeal. If the dispute is not subject to arbitration or if a party seeks court intervention for specific issues such as injunctions, litigation places the conflict in court. During litigation, formal procedures govern discovery, motion practice and trial, and a judge or jury delivers a ruling that either side can appeal. Throughout the process, the franchise agreement’s dispute-resolution clause, governing law and venue provisions typically shape which path applies and how quickly the parties can reach a final outcome.
What remedies are available?
Remedies depend on contract language, statutory rights, proof, causation and attempts at mitigation. They can often include monetary relief such as damages for lost profits, fee reimbursement and chargebacks of improper assessments as well as equitable remedies like injunctions to stop wrongful action.When facing a dispute, a franchisee should analyze agreement terms, disclosure documents, state franchise protections and evidence quality to determine the best course of action. Early action helps to preserve remedies. A well-chosen pathway can resolve disputes without losing the business, the brand rights or the ability to recover losses.Franchisees do not need to work through these disputes on their own. We offer free consultations and can help you determine the best course of action for your situation.]]>