Another set of franchisees has decided to sue their franchisor. In this case, the franchisor has changed hands several times in the past years and the new owner — an equity holding company — has made a lot of changes.
Here’s a sampling, from the point of view of the unhappy franchisees:
- They’ve added online ordering of products direct from the corporate website, reducing the product sales for local franchises.
- Since clients can buy replacement products online without a visit, franchisees lose sales opportunities for their services as well.
- They’re encouraging franchisees to add additional, related franchises owned by the same company. Those who can’t or don’t want to may be treated differently from those who make the change.
- They’ve cut back on marketing, reducing the focus on franchisees compared with online shopping.
- They’ve increased the costs to franchisees for proprietary products, reducing profits, but the franchise fees remain the same.
The franchisor may have a completely different way of describing these business decisions. However, the franchisees in question are very unhappy. After as much as 30 years of working with the franchisor, they’re facing changes that don’t work with their business model.
“We cannot keep our doors open, but we also have contracts,” one franchisee said. “At this point, I’m not even hoping to end up with money in the bank. I just want to be able to close my doors without being deeply in debt.”
Being able to make changes work for you is often part of business success. Companies often have to be able to respond to changes in their market, in fashions and tastes, and in technology, and people who can’t cope with change may find it hard to keep up in business.
However, franchisees can’t always be as agile as they’d like, since following the franchisor’s rules and systems is a requirement and the key to success.
How can you avoid having this experience in your future when you’re choosing a franchise today?
- Your franchisor may not be able to predict that they’ll be bought out by another company, but you can ask them how they see things playing out. Plenty of companies are built with the intention of selling out as fast as possible with a nice profit. Others have owners who expect to retire within a few years. You can look at the company’s history and you can ask about the succession plan.
- You can also negotiate putting the answer they give you into the contract you sign. You’ll have some protection if your contract says you’ll be able to renegotiate the contract if the company is sold, or to end the contract if you’re not happy with the new terms proposed by a new owner.
- Have a plan of your own. Franchisors support their franchisees, and a good long-term relationship is based on trust. Nonetheless, it makes sense to look toward the future. What will you do if your franchise relationship is not renewed? How will you respond if the franchise is sold? Start by thinking of worst-case scenarios and you’ll be sitting pretty if they don’t happen.
Thinking ahead can keep you from ending up with a last-ditch solution.
