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Franchisee Mistakes to Avoid

Guest post by: Jeff Brown

Article Overview: This article explores the most common mistakes franchisees make when evaluating a franchise opportunity and includes suggestions on how to avoid them.

Franchisee Mistakes to Avoid

FRANCHISEE MISTAKES TO AVOID
The 5 biggest mistakes potential franchisees make when evaluating a franchise are:
1. Not reading all of the documents governing the relationship. All franchise agreements (and all franchisors) are not created equal. Buying a franchise is a complicated investment and a life changing decision- make sure you know exactly what you are getting into. READ ALL THE DOCUMENTS CAREFULLY! The fact that you did not read or understand certain provisions of the agreements will not stop them from being enforced against you.
2. Assuming that the terms are non-negotiable. While it is true that some of the larger national franchisors will not negotiate their documents, THERE ARE MANY FRANCHISORS THAT WILL NEGOTIATE. Also, even the big guys may negotiate things such as territory restrictions and options for additional locations. Regardless of whether the documents are negotiable, you are still investing a lot of money to enter into the franchise relationship, not to mention the opportunity costs of foregoing other opportunities. You should read all of the documents very carefully and involve a qualified attorney and/or accountant to assist you.
3. Not calling other franchisees listed in the documents. A franchisor is required to list the name and contact information of all current franchisees and franchisees that have recently left the system. OTHER FRANCHISEES (AND FORMER FRANCHISEES) ARE YOUR BEST SOURCE OF INFORMATION ABOUT THE FRANCHISE AND THE FRACHISOR! CALL THESE PEOPLE! In almost all cases they will be happy to help you and answer your questions.
4. Not getting the franchisor’s promises in writing. The Franchise Agreement will almost always have a clause known as an “integration clause.” This clause essentially says “anything we told you or any promises we made that do not appear in this agreement don’t count.” MAKE SURE TO GET ANY PROMISES IN WRITING. If you don’t, it is unlikely you will be able to hold the franchisor to those promises.

5. Assuming that “it’s all standard stuff.” I am always amazed at the number of franchisees who just sign what they are given without question or review. All Franchise Disclosure Documents (FDDs) are required to disclose the same 23 specific items of information. While all franchisors are required by law to provide those certain disclosures, they are largely free to draft their documents and govern their relationships however they choose. You are not guaranteed a good or fair deal.

© Brown & Kannady, LLC (2008)
303-757-3800
info@brownlegal.com

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Protecting IP - Dear BigJim 22 Sure as long as it is in the Franchise agreement... ie wht you are offering as Francisor and what their obligations are as Franchisee It is all in the agreement........ take care Ian
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Re: Franchise Surveys - Good topic, thanks Agree with John [quote="JohnHenning"]Another good tool to researching a franchise is to speak with their existing franchisees. However, part of banding to to have confidence in your franchise brand so I suggest you may not get the answers you are really looking for. Further to this is reading the documents is one aspect as the Rosy pitch is offered by the Franchisor Let me share a recent pro-bono clients experience where reading and talking led to an underlying problem, a lack of business sense and preparation. A wealthy Singaporean Lady whose family members just wanted jobs, good or bad so their views to her were also slanted in their favor. Unless it is a household name, you prepare and understand the concepts, agreement and operations of the franchise. You are taking on too much risk. Locally, let get a couple of numbers. Best Western Hotel, an international brand sells for RM400,000 (plus $135,000) and they must approve the location to protect their brand. She was about to take care of her family members (for how long was the unknown) and put out RM600,00 ($200,000) to buy a new franchise of 4 restaurants (2 located in Malls and 2 in lessor locations, 2 big and 2 small) Now as a former Real Estate Broker in another life, I rank restaurant location right up there with buying properties. An to shorten this, some highlights Highlights Franchisor was selling his personal band name and reputation, not the Real value of the Restaurant brand Selling 4 locations help diversify the risk with the better ones feeding the less successful locations, real return on investment much lower, perhaps 50% of estimated returns Had client do their own demographics for the proposed locations, sit, watch, and count the crowd, test the food, where the masses were going to eat, etc Franchisee had to pick the menu for each location and of course buy the food at no loss to the Franchisor, so 4 locations, 4 menus, 4 different risks and and result NO SALE
Managing Your Brand - One of the biggest hurdles for a lot of business owners to leap when it comes to the internet is realizing that people will be talking about your company whether you like it or not. And that includes good AND bad. Mistakes are bound to happen in any business, but when they do it's quite possible that the story will wind up on the internet where anyone searching for your business can find it. If you're not maintaining an effective presence on the web or mortgage broker websites, you're going to have two problems if this happens. The negative review could wind up ranking high in the search results, so whenever somebody searches for your business, this could be one of the first things they see. The review might be accurate if a mistake really was made, or it might be completely inaccurate, but that potential customer has no way of knowing for sure (and is more than likely going to accept it as fact). You won't have a chance to explain the situation and fix it. The solution here is to be a part of the conversation. In other words, engage your customers where these kinds of things might appear so you can try to correct any mistakes that were actually made, or explain your side if it's completely inaccurate. There are two of the places that these kinds of discussions can happen - Facebook and Twitter. It's important that you have a presence on both, if only as a point of contact for your customers who are already in those places. Imagine this scenario… One of your employees has been dealing with a customer, and the customer is unhappy with the service they received. But instead of coming to you and giving you the opportunity to fix the problem, they go to these websites and post about the problem and how unhappy they were with your company. If you don't have a presence on Twitter or Facebook, you might never know about it. But people who are looking for information about your company online could quite likely find that information whenever they search for you. Now think about this... If you are active on those sites, on the other hand, you can jump in and try to correct the situation. This is not only going to give you a chance to turn an unhappy customer into a happy one (who might also become one of your biggest supporters at that point) it's also going to add your side of things to the "record" of the situation on the internet. Now when someone searching for you finds that review/complaint, they're also going to see your response, and the fact that you tried to correct the situation for that unhappy customer. Which scenario would you prefer?


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