About Franchise Lawsuits
About Franchise Lawsuits
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.
About Franchise Lawsuits - To learn more about this author, visit Sebastien Page's Website.
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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.
About Franchise Lawsuits - To learn more about this author, visit Sebastien Page's Website.
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John PowerJohn Power, founder of Biltmore Franchise Consulting, has extensive experience developing and marketing franchises and business opportunities. He has been in and around franchising for over twenty years. From 1980 through 1990 he conceptualized, organized, and developed the American Video Association. He grew AVA to 2,000 national members, before selling the company it 1990. It was later merged into another home video marketing company. From 2000 to 2005 he worked as a contract marketing and human resources consultant to several local and national companies. In 2005 Mr. Power began working as a franchise development consultant on a full-time basis. Since that time he has helped more than three dozen companies initiate and develop their franchising program. He notes that there are many companies interested in developing a franchise program, and who need his specialized assistance. Mr. Power is a “hands-on” franchise consultant. He said, “I am the ‘nuts and bolts’ person who tends to the details for my clients.” Mr. Power holds a B.S. degree with a major in Marketing. See: www.biltmorefranchise.com You may contact Mr. Power at: jpower@biltmorefranchise.co - Visit John Power's Website |
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Anne BarrAnne Barr has over 26 years experience in sales and marketing, six years as a franchisee. She has assisted over 367 business owners and purchasers to achieve their goals in career change, transition and exit strategy. She holds the designation of Certified Franchise Executive from the International Franchise Association, Certified Business Intermediary from the International Business Brokers Association and Board Certified Broker from the Texas Association of Business Brokers. Anne is active in professional organizations, networking groups and volunteers for non-profit entities. As owner/operator of four successful businesses, Anne has proven people skills and enjoys helping clients find the right "fit" in business ownership. Visit www.FranchiseOpportunitySpecialist.com for more information about me and my company. - Visit Anne Barr's Website |
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John BrennanJohn Brennan Ed.D. Dr. Brennan is President of Interpersonal Development, LLC, a training and development firm. Interpersonal Development has provided sales training and coaching to more than 3,000 sales reps from over 100 companies. A native of Australia, Dr. Brennan received his doctorate from the University of Rochester. His dissertation researched the effectiveness of Behavioral Modeling Technology in training people in interpersonal skills. While he has spent most of his career designing or delivering training, he was also a Vice-President of Sales of a training and development franchise with operations in 25 markets. Dr. Brennan has designed and delivered sales training in North America, Asia, Europe, Australia and the Middle East. He has been a guest speaker at numerous national and regional professional conferences. When Microsoft wanted Best Practices articles on sales for their web site, they called Dr. Brennan. The results are at http://office.microsoft.com/en-us/FX011387391033.aspx His firm’s clients have included Volvo, The Prudential, Merrill Lynch, Eastman Kodak, Gannett, Equifax Europe, the Economist Group and countless small businesses. - Visit John Brennan's Website |
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Jay Kubassek(Jay's Full Bio: EvanCarmichael.com/jaykubassek) In five years, Canadian-born entrepreneur Jay Kubassek went from selling mufflers at a Midas franchise to revolutionizing Internet marketing with the 2004 launch of CarbonCopyPRO, a online marketing education company, now worth over $20 million with customers in over 160 countries.
As an independent film producer, his upstart film fund Aliquot Films is currently producing a films with Spike Lee and Abel Fererra (starring Ethan Hawke and Dennis Hopper.)
Jay's entrepreneurial spirit is irrepressible. He’s the owner of five companies, a professional speaker and trainer, international real estate developer/investor, extreme sport enthusiast and emerging philanthropist. Jay resides in NYC with his wife Jamie, son Milo and dog Cooper. Visit Jay's official website: www.JayKubassek.com - Visit Jay Kubassek's Website |
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