What are your rights as a franchisee? Whether you are looking for more ways to grow your business or facing a potential dispute with a franchisor, this is a very important question. While you own your own business, you and your franchisor are inseparably intertwined, and your rights are largely dictated by the terms of your franchise agreement. However, there are various laws that apply to the franchise relationship; and, depending on where you operate your franchise, you may have additional protections under your state’s franchise law as well. Then, there are the general rights that exist by virtue of the fact that your franchise agreement is silent on certain subjects. Q&A with Franchise Attorney Jeffrey M. Goldstein Q: Are franchisors required to impose uniform standards on all franchisees? As a general rule, franchisors can impose different standards on different franchisees. While uniformity is one of the hallmarks of the franchise model, there are a variety of reasons why some franchisees may be subject to different standards than others. For example, franchisees in urban areas may need to do more to stand out from their competition than those in rural towns. Or, some franchisees may have negotiated additional protections into their franchise agreements. However, there are limits on franchisors’ ability to treat franchisees differently. Providing disparate treatment without a justifiable basis may constitute franchise discrimination. Franchise discrimination is a violation of franchisees’ rights, and legal remedies are available. Q: Do I have the right to negotiate my franchise agreement? Yes, […]

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Can you get wealthy by owning franchises? Undoubtedly, the answer is yes. Some franchisees are able to make significant sums of money, and they build careers as serial franchise owners. According to an article on Forbes.com, the largest restaurant franchisee in the world, Greg Flynn, has nearly $2 billion in annual revenues. The article goes on to list nine other franchisees that bring in over $500 million per year. However, for every Greg Flynn, there are countless franchisees who is struggling to make payroll or pay rent. For each of these struggling franchisees, there is another franchisee who has already failed. According to the Small Business Administration (SBA), franchisees fail at approximately the same rate as independent business owners, which means that roughly half of all franchises go out of business within the first five years. Also, keep in mind that Flynn owns 800 restaurants, has relied heavily on institutional capital, and has a team of professionals working for him behind the scenes. But, let’s assume that you are planning to start small, and that you don’t need to make hundreds of millions in order to consider yourself wealthy. What do you need to do in order to make your first franchise a success? Aside from having a sound financial plan, you also need to address the legal issues involved. For example: 1. Protect what you own currently. When you own a business that is open to the public, there is a chance that you will get sued. If you […]

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Deciding whether to buy a franchise or start an independent business requires consideration of a variety of legal, financial and practical considerations. While many people find success as franchisees, a significant percentage of franchisees fail. Of course, many independent businesses fail as well. In fact, according to the Small Business Administration (SBA), failure rates of franchised outlets and independent businesses are roughly equal. When trying to decide between buying a franchise and starting an independent business, here are some important considerations to keep in mind: 1. What is your business background? If you start an independent business you will, by definition, be on your own. Unless you have a natural business acumen, without a significant business background, you may struggle to find success independently. This is especially true with a brick-and-mortar business such as a convenience store, which requires you to lease retail space, hire employees, and maintain a sizeable inventory. However, you need business savvy to operate a successful franchise as well. Even when you are propped up by an established business model and have a real-world-tested system for running your business (all franchises should offer this, but not all of them actually do), you still need to make the day-to-day decisions. If you don’t know how to run a business, you are likely to struggle regardless of whether you choose to operate independently or as a franchisee. 2. What does the market demand? For certain types of businesses, operating under a franchised brand can offer a significant advantage. […]

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