Lauren A. Marsicano, Esq.
Business Law Attorney
Many individuals seek to enter the US with visas through business investments, but they neglect to thoroughly vet the businesses or review the potential contracts before investing the large sums necessary to secure such visas. This month, Lauren Marsicano, Esq. will discuss her experience with businesses, franchises, and what to lookout for when investing in the right venture in our SPOTLIGHT INTERVIEW.
Q: Thanks for taking the time to talk with us today, Lauren. First off, please tell our readers about yourself. What is the nature of your practice?
A: Our law firm, Marsicano + Leyva PLLC, focuses on business and family law cases. My half of the practice focuses exclusively on business law and commercial litigation. Essentially, I deal with agreements, or disagreements, between businesses and individuals and the legal issues that may arise. Whether it’s launching a business, building a business, or protecting a business, I serve clients as outside general counsel where I handle almost all the legal aspects that can arise while running a business. Not only have I worked for large Fortune 100 companies, but I’m also a business owner myself. This intimate knowledge and understanding better prepares me to anticipate problems and provide creative, cutting-edge legal solutions for my clients.
Q: When launching a business, what’s are the biggest mistakes someone can make that are also the easiest to avoid?
A: The biggest issue I’ve seen is the number of people that fail to invest in themselves and their businesses and fail to get a business lawyer involved early. Yes, you can launch a company with little investment, but in many cases, launching without a proper protection strategy and business plan can lead to six-figure mistakes down the road. I’ve seen cases where the business owner launched on their own and started conducting business believing that his own personal assets were secure merely because he had formed a business. He proceeded to use company funds and comingled them with his own, essentially using the company as his own personal piggy bank. When he was sued, the party suing him was able to get at his own personal assets to satisfy the judgment because he had failed to abide by proper corporate procedure and was using the company improperly.
In another case, I’ve seen an owner lose a six-figure investor because, during the due diligence phase, it came out that the business owner had made zero efforts to create any Operating Agreement or put into place any written processes or procedures. The investor left the deal because he believed that if the owner wasn’t taking the steps to invest in the protection of his own money and business assets, then how could the investor trust the owner with the investor’s funds?
In both cases, simply investing a few thousand dollars in proper corporate documents and legal advice on how to launch and run the business could have saved hundreds of thousands of dollars. Take the time to either save up the funds to launch or secure the necessary business loans so that you have the money necessary to hire the team you need to advise you initially (usually at least a business lawyer and a CPA). At bare minimum, you need to invest in high-quality educational tools and resources that will give you the proper legal foundations to launch your business confidently while minimizing risk. You get what you pay for (so think about that when you look at the next “free” product).
Q: For foreign nationals looking to invest in a business (like a franchise) in order to secure a visa to enter the US, what advice would you give them?
A: Get a business lawyer on your side IMMEDIATELY.
Many business attorneys have connections with owners looking to expand their companies or sell their companies to foreign investors. Franchises are a popular option because they provide a lot of the support and know-how for the launch and business operations of their particular company and in niche industries. However, many potential foreign investors (and potential franchisees in general) fail to read all the terms of the purchase agreements (if buying a business) or the Franchise Disclosure Document (if purchasing a franchise). In either case, the due diligence phase is a critical step that should not be overlooked or taken lightly. Also, a clear and well-negotiated Letter of Intent will allow for a smoother due diligence phase and also streamline negotiations later as many of the material terms would have already been discussed and agreed upon between the parties.
Q: What are the key red flags to lookout for in any purchase agreements, with franchises or otherwise?
A: The biggest areas of concern are how litigious the franchise is against franchisees, fees owed and when they accrue, review of the financial statements provided, and any restrictive covenants or terms that may prevent you from working in the area with the experience you would now have gained.
Part of the Franchise Disclosure Documents show how many lawsuits the franchise has been involved with over the years. The primary concern for the investor is how often the franchise brings claims against franchisees. Most attorneys can try to find these cases online as well so that you can see the full scope of the litigation involved and make your decision accordingly.
What fees are owed and when they accrue can also make a huge difference in your determination between franchises. Outside the franchise fee, you may have renewal fees, late fees, advertising fees, technology fees, consultation fees, training fees, transfer fees, etc. The potential franchisee should take all these fees into account when determining the amount of revenue they will need to make when taking into account all the fees along with overhead and other expenses in order to turn a profit. One of the biggest downfalls is failing to properly evaluate the earnings potential versus the actual costs involved in the business against how much initial investment and cushion you will need to run the company (i.e. initial runway for the first six months to a year). If you do not properly evaluate this, you run the risk of defaulting on your agreement and obligation and facing severe consequences from the franchise.
As for financial statements, make sure to go through those with a fine tooth comb to make sure the business is legitimate and has several years of statements and revenue to review. You want to lookout for how much the franchise reinvests in franchise systems and support programs for its franchisees. Make sure that you’re comparing similarly situated franchise areas when discussing projected revenues and goals. Your area may be open because of high cost of rent or wages compared to expected return, which is why it hasn’t been taken yet.
Lastly, make sure any restrictive covenants (like non-competes) are reasonable in duration and scope and don’t prevent you from using the company on your resume in the future should you leave. If for some reason you have to leave the franchise, you want to be able to use the experience to obtain gainful employment, probably with the experience you got running this franchise. Many times, they will also ask you to personally guarantee any commitments, and any such personal guarantees should be reviewed by an attorney to advise you on the scope of what you’re signing. Further,, if your visa was tied to this business, make sure you take that into account when deciding on a company you can stick with long-term to prevent any ongoing obligations or renewal problems on that front.
Q: Thank you for your time, and for your thoughts, it’s been a pleasure chatting with you. How can our subscribers reach you for a consultation?
A: I can be reached via email at LM@MLesquire.com or by phone at (305) 721-2917. For those that believe they cannot afford an attorney to consult with while launching a business, my recent e-course package “7 Steps to Startup Success: CEO Suite Bundle” includes 4 e-courses guiding small business owners through the basic legal strategies to protect and build their businesses into Simple 6-Figure Startups and avoid simple six-figure mistakes. The courses come with materials on the seven steps business owners should take when launching a business (including a step-by-step video guiding you through the online registration process) along with template agreements and guided videos for the Top 3 most requests corporate documents: Operating Agreement for Single-Member LLC, Independent Contractor Agreement, and Non-Disclosure Agreement. This package is valued at $10,000.00 and will be sold at $500.00 per course (or $2,000.00 for all 4 courses), but it is currently on pre-launch sale for $500.00 total (that’s 75% off!). Once purchased, if you send me the confirmation along with the secret code “Santana Immigration”, I will provide a free one-hour consultation upon completion of the courses.