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About Franchise Lawsuits

Written by: Sebastien Page

Article Overview: Always look into a company's background before you decide to invest in a franchise. After all, the last thing you want to do is throw your money into a concept that carries a history of trouble.

About Franchise Lawsuits

Always look into a company's background before you decide to invest in a franchise. After all, the last thing you want to do is throw your money into a concept that carries a history of trouble.
Luckily for you, all franchisors are legally required to provide prospective franchisees with a Uniform Franchise Offering Circular (UFOC ) document / Franchise Disclosure Document (FDD), which reports any and all history of litigation and bankruptcy associated with the company. While this is all well and good, you as a prospective franchisee need to make sure that you understand the nature of the relevant franchise lawsuits before you decide whether or not you should invest in the concept.

Understanding franchise lawsuits requires that you understand the origins of the legal conflicts that arise between franchisors and franchisees. For instance, when franchisors instigate litigation, it's because a franchisee has failed to meet contractual obligations. Alternatively, franchisees generally initiate legal action because they are unhappy with their businesses – they're either disillusioned with the franchisor or they're not making as much money as they'd prefer.

Unfortunately for the unhappy franchisee, however, franchisors are generally very careful about their obligations, and make a point of not assuring that their franchisees will be happy or successful. To minimize your chances of entering litigation as a franchisee, be sure you fully understand the disclosure document prior to purchasing a franchise. You might want to keep the following points in mind: Do the math.

When you're thinking of litigation, think in percentages. Regardless of which side has instigated and why, the overall percentage of litigation should be small for your investment to be worthwhile. For example, in the course of the last two years, the total number of litigations should be less than one percent. If the amount is over five percent, you should consider investing in a different concept. Why go into a business that has a history of trouble? Even if the percentage of litigation is somewhere between one and three percent, you should figure out what the source of the trouble is.

Find out who is instigating litigation and why. Are the instigators of litigation primarily franchisees? If so, be sure to conduct a thorough examination of the business' financial performance. That is, question the franchise system's ability to make money – because franchises that are doing well do not, as a general rule, initiate litigation (that is, successful franchise owners who merely want to do something else would just sell their businesses and get into another industry sector). If litigation is initiated predominantly by the franchisor, on the other hand, the indication is that the company merely turns to its lawyers to fix its corporate and inner-company problems.

Start a conversation with the franchisor. When you're investigating litigation issues, you ought to find out what you can about the disclosure – and it's always important to get both sides of the story. If a franchisor has reservations about providing an explanation for litigation, then that litigation is most likely ongoing and the franchisor is acting under its attorney's advice – which means that you should proceed no further and find yourself another franchise opportunity.

Engage in conversation with other franchisees. Franchisees, like franchisors, all have their own unique perspectives when it comes to litigation issues. Be sure to speak with involved franchisees when doing your research. As you are no doubt aware, there are two sides to every story (sometimes more), and you don't want to handicap yourself by failing to glean all the information that you possibly can.

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Article Tags: bankruptcy, contractual obligations, disclosure document, fdd, franchise disclosure, franchisor, franchisors, lawsuits, legal conflicts, litigation, math, much money, origins, percentages, prospective franchisee, prospective franchisees, uniform franchise



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Re: Enticing Franchises - Top 9 List - All Franchise listed above are in millions of dollars. Do you have the list of Franchise in thousands
Re: Info for would be franchisers... - [quote="Sebastien":1d29sdv1]Like Franchise Times, Franchise Update is a very practical magazine. There is no blah blah, just straight facts that anyone in the franchise community can relate to. I just want to mention that all these magazines are NOT franchisee oriented. I mean these magazines are for franchise professionals. If you're looking to buy a franchise, you won't find much information in there. To answer your question, getting published in Franchise Times was fairly easy. I don't want to brag too much but I think I am known in the franchise industry. I was the marketing guy at Franchise.com for a few years before joining my new company, the World Franchising Network. So people know me and I have a very good relationship with Nancy Weingartner, the Managing Editor at Franchise Times. I was talking with her at the last Franchise Expo South in Miami and she mentioned she'd like me to be profiled. I was like "ok, sure!". I like this franchise executive profile thing in Franchise Times as it is rarely BS. People are usually really natural in there.[/quote:1d29sdv1] Thanks for the follow up Sebastien! And I can't say that I'm surprised that networking with the right people and managing your relationships with them properly are the keys to being published. I guess the old adage holds true of "it's not who you know, but who knows you" that's important.
how much for a franchise fee? - Dear Colleague There is no easy answer to this question. Things to consider: [list=] The sizeof the Franchise Clent base Expected Turnover Intellectual Property costs (recoup) Number of Franchises Number of employees Original Set up costs Franchise admin costs An example: A franchise that I was involved in setting was to a simple "lawn mowing/home repair" franchise. The Franchise included national/local advertising - preparation of client lists - general admin - central accounting etc The Franchise involved 300-500 clients - and an annual turnover of about $300,000 . The annual franchise fee was $30,000. Hope that this gives you some idea Take care Ian[/list]
Re: Franchise Surveys - Another good tool to researching a franchise is to speak with their existing franchisees. This contact information is included in most Franchise Disclosure Documents. In order to get a Franchise Disclosure Document or FDD as it is often referred to, you will have to complete a basic franchise application. The franchisor will then usually provide you with the FDD at that time. Included in that book of information is a list of the existing franchisees, the contract, the investment information etc... This information is required by Federal Law to be disclosed to your prior to making a purchase. So be sure to do your research and start with the Franchise Documents to get the initial information.
Re: Info for would be franchisers... - [quote="Sebastien":2gam0klq][quote="BuzzAroundBooks":2gam0klq]Like Franchise Times, Franchise Update is a very practical magazine. There is no blah blah, just straight facts that anyone in the franchise community can relate to.[/quote:2gam0klq][/quote:2gam0klq] That is really what I look for in any industry publication. We lead busy lives and when people fill their magazines with fluff, not only does it benefit no one, but it makes us truly appreciate those that don't. Thanks!


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