I am a huge fan of both the television shows Shark Tank® and The Profit. Beyond the entertainment factor, they offer a wonderful business education for those who are looking. Every episode of each show has several recurring themes that every business owner should always take note of: planning, knowing your numbers, knowing when to ask for help, determining priorities, picking the right people, etc. As a business owner, attorney, and counselor at law who often and mostly works with small businesses, I very much relate to the themes of both programs.
On a recent episode of The Profit a couple ”franchised” their restaurant. After asking a few question Marcus, the business-investor/main character of The Profit, found that there was another company that owned the trademark for the name of this supposed franchise. Upon further questioning it came to light that the couple provided no support to their franchisees, other than to stop by to pick up the monthly royalty check, the franchisees basically purchased a liability, a license to use a name that was infringing on the rights of another. This created a number of issues and two important legal lessons:
(1) always do your due diligence before starting or investing in a business – As much blame as could be put on the franchising couple, the franchisees did not educate themselves prior to purchasing a part of this “franchise.” Franchisees seemed clueless not just in what it is to be part of a franchise, but in how to run a business. , To make things worse, the franchisors were unaware of what was necessary in order to run a successful franchise, they had no policies, procedures, or systems. They did nothing in fulfilling their duty to provide the true value of being part of a franchise to any of the franchisees. This illustrates the importance of doing due diligence before investing in a business or purchasing a license from another; and
(2) always conduct a proper search before adopting a name – The franchisors failure to conduct a search before branding their business resulted in them ultimately having to change the name and rebrand because the original name had already been trademarked by another. This use of the name could have created a liability for infringement for both the individual locations and the franchise owners.
This episode illustrated how the above issues could easily have been avoided. Simple questions and a bit of research could have prevented stress, frustration, headaches, and money woes to all those involved.
We all have to face it; we don’t know what we don’t know. Starting and operating and maintaining a successful business is hard enough without having to deal with the legal issues involved. Don’t wait until your business “is big enough to warrant” hiring a CPA or an attorney. Speak with, consult with, and hire professionals in their fields prior to starting your business or as soon as you read this if you have in fact already started a business and have yet to consult with the professionals.
DISCLAIMER: The information contained in this article is for informational purposes only and is not legal advice or a substitute for obtaining legal advice from an attorney.