If you are thinking about buying a franchise, you probably have at least some idea of what to look for in a franchise opportunity: Brand recognition, system stability, reasonable fees, happy franchisees – these are all key characteristics of a successful franchise system (of course, as a franchisee, your success is never guaranteed). But, do you also know what not to look for? Are you aware of the types of red flags that would (or, at least, should) send most prospective franchisees in search of a different opportunity? If not, this recent article on Blue MauMau is worth a read. These are the Hallmarks of a Toxic Franchise System The article highlights the recent downturn of the Dickey’s BBQ franchise system. According to Blue MauMau: “In fiscal year 2017, [the franchisor] opened 88 Dickey’s franchised outlets, but [73] ceased operations, according to its FDD.” “But[,] 2018 made 2017 look good. In the latest year, the brand opened 72 new franchised units, but had 89 terminations and 24 ceased operations, for a net store loss of 41 units.” With 562 franchised units at the start of the year, these 2018 figures represent a reduction in size of more than seven percent; and, adding in transfers, the total “churn” (the number of franchisees leaving the system) was an “alarming” 28 percent. “Many [franchisees] said they were unprofitable, and should close, but had to weigh the decision of whether they would lose more money staying open or being sued for 5 years of […]

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Nationwide, 21 states and Washington D.C. have laws in place that govern the franchise disclosure process, the franchise relationship or both. Due to the heavily one-sided nature of franchising, these laws are designed to protect franchisees by helping ensure that they receive accurate information, and that they have at least some opportunity to protect their investment if things do not go as planned. The states that have franchise laws are: Arkansas California Connecticut Delaware Hawaii Idaho Illinois Indiana Iowa Kentucky Maryland Michigan Minnesota Mississippi Missouri Nebraska New Jersey Tennessee Virginia Washington Wisconsin If your state has a franchise law, the implications for your franchise will depend on the type of law (disclosure, relationship or both) and the scope of its provisions. Franchise laws vary widely from state to state, and some provide significantly more protection than others. Examples of State Franchise Law Provisions 1. Franchise Disclosure Requirements (and Consequences) In states with franchise disclosure laws (i.e. California, Illinois and Maryland), franchisors must meet certain requirements in addition to those imposed under the Federal Trade Commission’s (FTC) Franchise Rule (the FTC Franchise Rule establishes the nationwide standard for the 23-item Franchise Disclosure Document (FDD)). One of the most-common provisions in these laws is an extension of the “cooling off” period before a franchisee can be asked to sign a franchise agreement. Potential remedies for disclosure violations under state franchise laws can include an option to terminate the franchise; although, the circumstances in which this option is available are usually pretty limited. […]

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It finally happened. You’ve decided that enough is enough, and you are ready for the nightmare of franchise ownership to be over. Your hopes have been dashed. Your expectations have gone unfulfilled, and your franchisor has gone silent as you have struggled to keep up with your monthly expenses. Unfortunately, this is an all-too-common reality for franchisees in all types of franchise system. Despite the industry-published statistics on franchisee success and the promises your franchisor made before you signed your franchise agreement, building a profitable franchise is not easy. A significant percentage of franchisees close before the initial terms of their franchise agreements expire, and these “failures” are often due to the fact that franchisors fail to uphold their end of the bargain. So, you are ready to get out. What do you need to know? What You Need to Know about Terminating Your Franchise 1. Franchise Agreements are Long-Term, Legally-Binding Contracts For most fed-up franchisees, the initial prognosis is not good. A franchise agreement’s initial term is both a minimum and a maximum, which means that (i) you are bound until the agreement expires, and (ii) when your agreement expires, it is largely up to your franchisor whether you get to renew. How many months (or years) are left in your franchise agreement’s term? If you are close, you may be able to find a way to wait it out; or, you may be able to use this as leverage in termination negotiations with your franchisor. But, until you […]

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When buying a franchise, you need to make a number of important decisions. One of these decisions is: Should you buy into a well-established franchise system; or, should you get in on the ground floor of an up-and-coming franchised brand? Both options offer potential benefits. While buying into a well-known franchise can offer instant brand recognition, buying into a new franchise system can reduce the risk of territorial encroachment and intra-brand competition.  Established franchisors offer experience, while new franchisors may offer fresh ideas and a more-contemporary approach to doing business. Should You Buy into an Up-and-Coming Franchise? But, both options come with potential drawbacks as well. Here are five risks associated with choosing a new franchise system: 1. Lack of Franchising Experience Franchising is a unique business model, and not everyone who succeeds in building a retail brand will be successful operating as a franchisor. When you are relying on a franchisor for guidance and operational support, it can be challenging to work with executives and personnel who are not experienced in managing a franchise system. 2. Lack of Brand Recognition In most cases, one of the primary benefits of buying a franchise is to benefit from the franchisor’s brand recognition. Instead of promoting a new brand that no one has ever heard of, you get to benefit instantly from the goodwill that the franchisor has cultivated over years of consistent marketing and providing quality service to its clients or customers. But, if you will be the first franchisee in […]

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“Green” franchises became mainstream a handful of years ago, and their popularly has held steady ever since. From commercial cleaning and pressure washing franchises to franchises that install synthetic turf systems and home efficiency technologies, if you want to start a business that is eco-friendly, there is probably a franchise opportunity that will appeal to you. But, as with all franchise opportunities, when purchasing a “green” franchise, it is important to perform your due diligence. This means talking to the franchisor, talking to current and former franchisees, and hiring a franchise lawyer to review the Franchise Disclosure Document (FDD) and franchise agreement. In addition to the legal concerns that apply to franchise opportunities generally, here are some “green”-specific considerations to keep in mind: 1. Substantiation of “Green” Advertising Claims When “green” businesses started popping up with increasing frequency, so did references to the concept of “greenwashing.” This term refers to businesses spinning, misrepresenting, or selectively publishing information in order to make themselves appear “greener” than they really were. Significant cases of greenwashing can constitute false advertising, which is a form of consumer fraud As a franchisee, you will likely use advertising materials that have been prepared by your franchisor. But, this does not necessarily mean that you are immune from liability for false advertising. Your franchisor should be able to readily substantiate its claims of environmental friendliness; and, if it can’t, your best option may be to consider a different franchise opportunity. 2. Mandatory Suppliers For product-based franchises, the commitment […]

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