Franchises questions
January 23, 2025
by a searcher from The University of Chicago - Booth School of Business in Greenwich, CT, USA
hi all,
Maybe this is not the appropriate forum, but there might be someone that can direct me. I have some questions related to franchises
- can you negotiate the standard Franchise Contract, to limit the downside, especially when you acquire an existing location, that is not necessarily successful
- if a franchise doesn't work, are there any ways to exit and minimize your losses
- anyone knows of any forum specialized in franchises? similar to this one?
from University of Virginia in Walla Walla, WA 99362, USA
If the franchisor will move on lots of terms, it's probably a bad franchisor. It's either small, so you are taking a lot of risk and they won't be able to support you well. Or it's struggling, which is also bad. Look for extraneous risks that you can protect for, but certainly don't expect a lot of negotiation on fees.
The only other thing I would say is that they are driven by the economics. So, in my agreement for example, they don't solidify by policy that things sold on their website to my customers mean revenue for me, but they do it in practice. Stopping this practice would piss franchisees off significantly and create problems for them. So, even they they are not required to do something, they do typically revert to economic logic as a decision maker.
from Texas Christian University in Mansfield, TX, USA
If your concerns are limited in scope and nature, it might be an easier discussion with the franchisor. Remember the franchise agreement is the form in which franchisors define how they can protect the brand, and their unwillingness to accept major revisions is actually a good thing for the system and everyone's investment.
With that said, if negative performance is your only concern, ask for a reasonable out that’s easily definable and verifiable - I.e, 4 quarters of negative EBITDA certified by an independent CPA. Use this request to gauge the franchisees temperament on working with and supporting franchisees through tough times. This will be a good barometer for any other future issues if you do move forward.