Your franchise agreement is about to expire. You have reviewed the renewal conditions in your franchise agreement, and you are pretty sure that you have done everything that is required in order to extend your franchise for another term. So, why does your franchisor seem to be the only thing standing in the way? There are a few potential reasons why your franchisor may not want to renew your franchise agreement. Understanding these reasons will help you make informed decisions about your next steps forward. 3 Reasons Why Franchisors Try to Prevent Renewal Although individual circumstances can vary, there are three primary reasons why a franchisor may not want to grant a renewal term to a particular franchisee. These reasons are: To Grant the Territory to a More-Favored Franchisee – Whether you have struggled to consistently meet your royalty and advertising fee obligations, an existing (and more profitable franchisee) has expressed interest in your franchise, or a new prospect is interested in your territory and appears to be more attractive franchise owner, your franchisor may be trying to remove you from the system in order to make room for a more-favored franchisee. To Take Over Your Territory for Itself – If your territory has been particularly profitable, your franchisor may want to take over the territory for itself. It may be that your franchisor wants to let your franchise agreement expire so that it can open a new company-owned location. To Offer an Area Development Agreement to a Larger Franchisee […]

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When you buy a franchise, you expect value for your investment. You paid an initial franchise fee and you will be paying royalties and advertising fund fees for years to come, and you – rightfully – expect something in return. However, as a franchisee, the onus to succeed is ultimately on you. No matter what the franchisor’s sales representatives told you during the pre-buying process, and no matter what your preconceived notions of the franchise relationship may be, as a franchisee, you are responsible for your own success. While you should be able to count on your franchisor for basic system support and to grow the general recognition of the franchised brand, it is up to you to turn a profit as a franchise owner. 5 Key Considerations for Early-Stage Franchisees So, what does this mean from a practical perspective? While every franchise opportunity is unique and industry, geographic and other factors will greatly influence the profitability of any individual franchised business, some steps early-stage franchisees can expect to have to take on their own include: 1. Marketing the Business Prior to Opening Grand opening expenditures are (or should be) included in the Franchise Disclosure Document’s (FDD) Item 7 estimated initial investment disclosures, but even the high-end estimate will often fall far short of what franchisees need to spend. Social media and local grassroots marketing efforts may be necessary as well, and franchisees will often benefit greatly from building awareness while they work toward opening for business. 2. Developing and […]

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Whether you are an experienced franchise owner or you are thinking about leaving your full-time job to enter the world of franchising, buying a franchise in 2019 presents some unique legal and practical considerations. Before you sign a franchise agreement, here are five important factors to keep in mind: Factors to Consider Before Buying a Franchise 1. Franchise Openings, Closings and Projections Franchisors are required to update their Franchise Disclosure Documents (FDDs) annually to reflect new openings and closings and to provide updated projections for the coming year. How old are the data in the FDD you received? While historical figures can still be useful, more-recent trends will give you a better idea of the current state of the franchise system. 2. Industry Factors Speaking of trends, while some franchise concepts have staying power, others seek to capitalize on trends in consumer behavior. The hottest franchise in 2018 may not have much viability in 2019, and the concepts that are popular now may not be popular in 2020. 3. Online Competition Consumers are increasingly turning to the Internet for retail purchases, and new delivery services are making it faster and easier to get everything from food to clothing (that you can try on and send back) at home. Additionally, as we recently discussed, Amazon is offering a $15 per hour entry-level wage, and this may make it harder for franchisees to attract quality employees as well. 4. Franchise Agreement Terms From arbitration to indemnification, franchisors are constantly finding new ways […]

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According to Franchise Direct, the pet franchise industry is growing rapidly. With pet owners spending around $70 billion annually, buying into a pet-related franchise may seem like a smart investment. But, whether you are interested in opening a brick-and-mortar “pet hotel” or retail outlet, operating a mobile pet grooming franchise, or walking dogs in your local neighborhood, there are some important legal factors to consider, and rushing into a franchise opportunity could prove to be a costly mistake. Important Legal Considerations for Purchasing a Pet-Related Franchise Before you buy a pet-related franchise, here are some important legal considerations to keep in mind: 1. Liability to Clients If you will be providing training, walking, grooming, or hospitality services, what are your responsibilities while you have custody of your clients’ pets? What if an animal gets sick while in your care; or, what if one client’s pet attacks another’s? While your franchisor should provide guidance for addressing these types of issues, do not expect your franchisor to assume liability if your franchise gets sued. This is true even if an animal gets sick or injured to your use of franchisor-mandated products or supplies. 2. Liability to Others In a similar vein, what happens if a client’s pet attacks someone else? For example, what if a client’s dog escapes off-leash or you lose control of a dog during a walk, and the dog bites a passer-by? Once again, your franchisor is not going to assume responsibility; so, should you? Are you prepared to […]

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A recent article on FranchiseDirect.com seeks to answer the question, “How much does it cost to buy a franchise?” by comparing the startup costs for two very different franchise opportunities: a work-from-home travel agency and a 300-plus room high-end hotel. In doing so, it lists the Item 7 estimated initial investment disclosures from two Franchise Disclosure Documents (FDDs), which range from a low-end total of $3,245 to a top-end investment in excess of $64 million. While these may be franchisors’ actual published figures, they represent two different extremes. Most franchisees will need to initially invest amount that is somewhere in the middle, often somewhere roughly in the range of $50,000 to $100,000. Where to Find Information on Franchise Startup Costs When looking for information on franchise startup costs, Item 7 of the FDD is one place to look, but it should not be prospective franchisees’ only source of information. There are a number of reasons why. Most notably: Franchisors’ numbers in Item 7 are “estimates,” and they may or may not be based upon data gathered from franchised and company-owned openings. Startup costs can vary by geographic location. Real estate leases, licenses, permits and other necessities can all vary greatly in cost from one area to the next. The list of itemized expenses in Item 7 may or may not be complete. Franchisors may overlook or omit certain expenditures, or you may need to incur costs that are not common amongst other franchisees. Even franchisors’ high-end estimates will often be […]

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