One of the most common questions that new franchisors ask is "What are the most common mistakes new franchisors make?"
If you pick up any franchise agreement and skim to the section where it discusses termination, I’d bet my left arm that you’ll find a long list of franchisee defaults that can result in termination by the franchisor. And, if the franchise agreement mentions the franchisee’s right to terminate at all, it is probably limited to one quick paragraph.
“Outrageous!” you might say. “One-sided!” you say.
I’ve seen a lot of new franchise systems fail. In almost every case, their underlying businesses were wildly successful, with a well-identified market and solid revenues. Their owners and management teams were typically motivated, dynamic people. Their brands were strong and their marketing proven and effective.
What went wrong?
Recently, a number of my friends and franchise colleagues have been debating on social websites whether it is ever a good idea to buy into a franchise system that does not make any sort of financial performance representation (or, “FPR”) in its Franchise Disclosure Document. Naturally, I have my own thoughts on the subject.
Patrick Maslyn will be presenting at the upcoming Virginia Bar Association Summer Meeting on July 19, 2013.