Jun 28, 2021 - Blog, Franchise Articles by |

When you buy a franchise, there is a chance that your franchise will fail. This is a risk you take when you sign your franchise agreement, and it is a risk that you should take only if you have a clear and comprehensive understanding of what you can expect as a franchisee. But, while there are many factors that prospective franchisees need to consider, there is one factor that they shouldn’t: Franchisees shouldn’t have to worry about their franchisors failing. Unfortunately, in many cases they do. This is a fact our franchise lawyers know all too well.

Common Franchisor Failures

First, we’ll talk about failures that don’t necessarily threaten franchisors’ viability as a going concern, but that nonetheless threaten the viability of their franchisees’ outlets. Here are four common examples:

Failure to Provide Adequate Support

Franchisees frequently find themselves wanting more from their franchisors in terms of support. After all, support is one of the hallmarks of the franchise model. When franchisors fail to provide adequate support, franchisees can find themselves struggling; and, eventually, they can find themselves in a position where they are unable to do what is necessary in order to succeed.

Failure to Enforce Trademark Rights and System Standards

Franchisees can also face challenges when their franchisors fail to enforce their trademark rights and system standards. If competitors use the franchisor’s trademarks without authorization, this can eat away at the brand’s value. Likewise, if other franchisees are permitted to deviate from the system standards, this can lead to inconsistent consumer experiences and loss of the brand loyalty that is essential to many franchisees’ success.

Failure to Adapt to Changes in the Market

Stagnation is common in the franchise industry. Once franchisors find something that works (or that they think works), it can be very difficult to get them to consider new ideas with an open mind. Over time, this can make operating a franchise untenable, as customers will choose other options that better serve their preferences and demands.

Failure to Put Franchisees’ Interests First

From mandating the use of expensive suppliers (that pay rebates to the franchisor) to imposing unreasonable operational requirements, many franchisors fail to put their franchisees’ interests first. This can also become untenable for franchisees, and it can put them in a situation where they are forced to choose between failing and breaching their franchise agreements.

If your franchisor is failing in any of these respects, you may have rights under your franchise agreement or your state’s franchise law (if it has one), and you should consult with a franchise lawyer promptly.

What Happens When Your Franchisor Fails Completely?

Now, what if your franchisor fails completely? In other words, what if it goes out of business? This is an entirely different situation, but it is also a situation in which franchisees will need to engage experienced legal counsel immediately. In these scenarios, the options franchisees have available will often depend on the current state of the franchisor’s finances, and acting quickly can be essential to preserving any possibility of financial recovery.

Talk to Franchise Lawyer Jeffrey M. Goldstein for Free

If your franchise is failing, you should consult with a lawyer before things get worse than they already are. You may have options available. To speak with franchise lawyer Jeffrey M. Goldstein in confidence, call 202-293-3947 or request a free consultation online today.

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