Legal questions slow things down

Today my attorney and I met to discuss the 30+ page franchise agreement and its various addendums. As mentioned in an earlier blog, many of my questions were related to non-competition clauses. These questions are probably unique to my situation because I already own 2 fitness centers (only one of which I am converting ... for now), as well as a company that sells products and services to other fitness centers nationwide.

In its original format, the agreement would put me in breach immediately since my second facility would be considered a 'Competitive Business', as would many of my current and future customers since they, too, operate fitness centers.

For their part, World Gym recognized this as a conflict for me and they created a new addendum to address the issue, redefining what a 'Competitive Business' is, and excluding most of my existing activities. Today's meeting was primarily to ensure that this issue has been adequately addressed from my standpoint. Ultimately, my attorney and I decided that it would be best for us to draft our own addendum - which I hope to have in my hands by Wednesday.

Most of the other provisions in the franchise agreement were pretty standard according to my attorney. Interestingly, he noted that even from a financial standpoint, the WG monthly franchise fee structure was fair. He based his assessment on comparisons to many other franchise agreements he has reviewed.

On another note, here's some advice that may be of interest to those of you who are considering a business venture like this one. I am being advised to establish a new business entity for this particular club, referred to as an LLC.

I know a fair amount about LLC's (Limited Liability Corporations), and, in fact, I recently advised my sister-in-law to consider forming one for her new business. But I hadn't really thought of forming one myself for this particular business entity.

At the risk of throwing too much legal jargon around - here it is in a nutshell. My fitness center is currently a DBA of an S-Corp I formed over 10 years ago. In fact, my second fitness center is also a separate DBA of the same corporation - as is my other company. I learned today that, although this structure enables me to open bank accounts under 3 different trade names, it opens up each of the businesses to shared liability. Here's what that could mean. Let's say, for example, that something catastrophic were to occur at one of my fitness centers and it was not covered by my insurance. The result could be the exposure of the assets of the other two businesses to the financial peril of the first.

So a word of caution is in order. As anxious as I am to get things moving ahead, I have learned that it does not pay to overlook the larger legal aspects of this type of endeavor. Before today, my goal was to be able legally to say that my club is a World Gym by the end of this week. However, after meeting with my attorney, I believe that it is more accurate to aim to have all of my legal affairs in order by the end of this week. Of course World Gym will still need to have their legal department approve of everything, so I'm thinking it's likely to be more like next week.

Some of the planning tasks we are continuing to do while the legal matters get ironed out include:
1) website development
2) laying out graphics for our company van
3) direct mail strategy
4) lining up contractors to do some remodeling work

However, I have not committed financially to any of these yet. But preparing in these areas will allow me to move quickly once the agreement is signed.