As a franchise owner, your options for scaling your business and maximizing your profitability are limited. Not only are you likely geographically limited by your territory, but your options for expanding and offering new products and services are likely limited as well. Perhaps unsurprisingly, this is by design. Franchisors want to extract as much revenue from their franchisees as possible, and, as a result, when franchisees want to expand, their only viable option is often to buy a second franchise.
But, even for successful franchisees, buying a second franchise isn’t always a straightforward process. Franchisees need to approach the process strategically to give themselves the best chance of securing a second franchise on favorable terms.
What does this entail? Here are some key considerations:
Make Sure You Are In Full Compliance With Your Franchise Agreement
When seeking a second franchise, you want to put yourself in the best position possible. You also want to have as much leverage as possible for negotiating your new franchise agreement (more on this below). With this in mind, before approaching your franchisor about a second franchise, you will want to make sure you are in full compliance with your current franchise agreement. If you are in breach of contract, or even arguably in breach, this could lead to unnecessary complications that might not only jeopardize your second franchise opportunity—but potentially your current franchise as well.
Approach Your Franchise Agreement Negotiations Proactively
Now that you have been in the franchise system for some time, you know what works and what doesn’t. You also know your pain points, and you know the terms of your franchise agreement that are most disadvantageous to your financial stability, legal risks and future business prospects. As you target buying a second franchise, you will want to use this knowledge to your advantage and approach your franchise agreement negotiations proactively.
When buying a second franchise, you will be required to sign a second franchise agreement—and this agreement will be on the franchisor’s current form. While it is unlikely that too much has changed, there could still be material differences. This is important to keep in mind as well, and if your franchisor’s new franchise agreement presents new risks, you may want to begin your negotiations by seeking to use your existing franchise agreement as the baseline.
Have an Available Location In Mind
To avoid getting pressured into an undesirable location, it is a good idea to approach your franchisor with a specific (and available) location in mind. You can review the franchisor’s website or current Franchise Disclosure Document (FDD) to see where its other franchised and company-owned outlets are located, and you can use your knowledge of the franchisor’s territory system to project what locations are available.
Are You Thinking About Buying a Second Franchise?
If you are thinking about buying a second franchise, attorney Jeffrey M. Goldstein can assist you every step of the way. To get started with a free and confidential consultation, call 202-293-3947 or tell us how we can reach you online today.
