The Tame Franchisee
In my last article on franchising I wrote about the perils that can await the unwary when it comes to buying a franchise but I also made another very strong point – there are many, many fantastic franchises out there and there’s bound to be one for you.
Just be sure to conduct more than a cursory amount of due diligence as it can be a case of the more you dig, the more you’ll find!
Take, for example, the “Tame Franchisee”. No such creature? Let me assure you that they do, indeed, exist.
Let us imagine for a moment that the franchisee has committed some transgression of the franchise rules. A couple of examples might be selling unauthorised products or failing to pay royalty fees on time. The franchisor then issues a warning to the franchisee.
If the franchisee fails to rectify the situation within the required time, then the franchisor (or the franchisee for that matter) might seek to have the matter heard before an independent arbitrator. Failing to have the matter resolved at that level may then lead to legal action which, in the worst-case scenario, might end in the termination of the franchise agreement.
Now a franchisor that doesn’t have the best interests of his current and future franchisees at heart might leverage that situation by putting pressure on the franchisee to paint a rosy picture of the franchisor if asked. For example, the franchisor may have supplied a “modified” list of all current and past franchisees to a potential franchisee (highly illegal, not to mention extremely unethical) and he wants to ensure that all enquiries have a very positive “spin”. So, he might “suggest” that this particular franchisee is the best person to ring because they have “a store that’s representative of the demographic that you’re looking at” or some other such comment.
The “tame franchisee” then, of course, extolls the virtues of the company, ensuring that his own slate is wiped clean and, hopefully for the franchisor, another person enters the franchise. And who wouldn’t want to join having seen the glossy literature as well as having heard from the horse’s mouth how good the company is!
The franchising industry is littered with such stories and they form an unfortunate part of franchising history. The upside of course, is that these types of events draw attention to the industry and then in turn from the regulators. The relevant authorities then work towards closing loopholes that allow this behaviour.
When I worked for a large American-based franchisor – one of the extremely good ones I might add – I found that the rules in the US differed somewhat from the rules here in Australia. The Disclosure Document that this company issued was (it seemed) inches thick, given the amount of detail that they were required to furnish to prospective franchisees. Every current and past franchisee was listed along with their contact details and the potential franchisee was encouraged to ring any and all of them. As I said, they are one of the good ones.
So, if you’re thinking about joining a franchise then don’t just ring the list of names that might be given to you. Do your research – get on the company website and find the name and contact details of every franchisee. Then, when you’re speaking to them, ask if they know of anyone who used to be a franchisee but isn’t listed anywhere. You’re going to be in business with this company for a long time, so spend as much time as necessary to ensure that you’re making a decision based on all the facts. It could just save you a lot of money and a lot of grief.
This is the second in a series of articles on this subject so keep coming back to this site for further updates. My next article will be focused on secret kickbacks and the implications.
If you would like some one-on-one advice or guidance, don’t hesitate to contact Phil Roberts at www.futurefocusadvisory.com