“If I could get out of my franchise …”
“If I could get out of my franchise …”It happened again recently! I was talking to a franchisee about her chances of selling her franchise business and she came out with the statement I hear so often from franchisees – “If I could just get out of my franchise for what it cost me to get in to it, then I would be happy”.
I hear this so often from franchisees struggling to make a profit in their business. Often they are in a retail situation in a shopping centre. After a few years they realise that the only people making any money are the shopping centre owners and the franchisors. In effect, the franchisee is working to keep the shopping centre owners and franchisors in the lifestyle they have come to expect!
Unfortunately, once you are IN and have invested the money, it can be very difficult to get out and recover your costs. If the lease is in the franchisee’s name then you are stuck with that as well. If the lease is in the franchisor’s name, which it often is these days, then the franchisor may be able to terminate your franchise agreement for not meeting targets, put a manager in to the store to keep it running and protect the brand and then recruit a replacement franchisee to take over. The franchisor and their brand are well protected.
Look, I am not against franchises! There are some excellent franchise businesses out their and most franchisors will do the right thing by their franchisees! My point is though that people need to have their eyes open when considering a franchise and understand what they are getting in to.
When you get in to a franchise – new or established;
(1) You are not buying a business! You are signing up to an agreement to operate a business for a ‘term’. That means that you effectively have a license to operate one of the franchisor’s businesses for a period of time (the ‘term’).
(2) There is no guarantee that your agreement will be renewed at the end of the ‘term’ or that you will be able to sell the business. READ THE AGREEMENT AND GET LEGAL ADVICE! Know what will happen at the end of the ‘term’ and what your options will be.
(3) No matter how well you build the business over the ‘term’ the client base (goodwill) belongs to the franchisor.
So, I always say “Find out how are you going to get out of it before you get in to it.”
As I said above, there are some very good franchise operations in Australia and we have such a strict Code of Conduct for Franchisors – as part of the Trade Practices Act – there is no excuse for a prospective franchisee NOT having their eyes open before they sign up.
Always speak to existing franchisees and see how they are going, and if possible, franchisees who have left the franchise. Under the Act the franchisor must provide details in their disclosure document for you to do this.
To view a Guide To The Franchising Code of Conduct for franchisees CLICK HERE
Thinking of buying or selling a business, of any kind, then attend one of my half day workshops on buying and selling businesses – click on WORKSHOP PROGRAMS tab above.
Regards John
“Helping business owners preapre their business ‘ready for sale’ because a business which is ready for sale is well worth keeping!”
I don’t say “I told you so” very often, but I felt the urge to do so after reading a detailed article in the West Australian newspaper. The article is titled “Small retailers feel the squeeze of big shopping centre landlords”. (Unfortunatley, the article is not available on their web site).
