Franchise Owners
Our clients that own franchise business present many unique challenges. For instance, our franchise clients' entire business existence usually depends on a single relationship-with the franchisor. Unlike our sales and distribution clients, many of our clients who own franchise businesses purchased them without much experience in the industry. What also makes these clients unique is that many of them buy a franchise as an investment or to realize the dream of owning their own company.
There are only two reasons to purchase a franchise business. The first, and most important, is access to a powerful and proven brand that is aggressively maintained and promoted by the franchisor. Second, is the opportunity to buy a business that is virtually a "turn key" operation. If you are considering buying a franchise that does not meet these two key requirements, you should seriously reconsider the investment.
Also, remember, the franchisor is not your partner. A partner shares the risk of your investment, and has a stake in whether you succeed or fail. A franchisor makes an initial franchise fee on your purchase of the business, and then ordinarily takes a percentage of your gross sales-not your profit. This means franchisors make a royalty even if you are losing money-and regardless of how much money you lose. If you go out of business, they simply re-sell your franchise to somebody else. That is not a partner. Consequently, the brand power of the franchisor's name or the proven success of their method of operation had better be worth the substantial money you will pay to buy the franchise and that you will invest to equip, stock and operate the business.
There is also a complex and overlapping matrix of state and federal laws governing the registration, sale and termination of franchise businesses. These laws often vary dramatically from state to state. Therefore, regardless of how smart, savvy or experienced the buyer of a franchise may be, very few are equipped to navigate through the myriad of problems that quickly spin out of a franchise purchase that has gone bad. Most people in this situation feel like they have been literally "thrown to the wolves," as they are assailed by the financial demands of vendors, landlords, employees and the franchisor.
These are the situations we deal with every day. We consult with clients who are thinking about buying a franchise. We review the mountain of data and information franchisors provide prospective purchasers, and we distill this into critical keys you need to make what may turn out to be the most important investment of your life. Most importantly, though, we go to the mat for our franchise clients who are caught in the inexorable financial miasma of a bad franchise purchase. We have even helped our clients organize franchise owners' groups, to exercise a collective voice in addressing systemic franchise problems.