This week in our “Franchise Lawyer Special” Series: You may have purchased a big brand franchise and at the time, it might have seemed like a fantastic idea. Several months in or a couple of years later, your franchise is not making any profit or you might even be losing money. What should you do now?
There are a number of options available to you which are outlined below.
Make changes to the business
This is more of a practical option than a legal one. If your franchise was profitable before and is not profitable now, you should take a step back, and consider what has changed. Have you employed new staff members who are not experienced? Have competing stores opened up nearby? You should carefully consider what might turn your business around and how such changes can be implemented.
Another valuable resource may also be to look to other franchisees in the network and find out as much as you can about why their franchise business is working. There might be subtle differences which could greatly assist in reviving your business. Location can always be a key determinant and you should factor this in when comparing your business to any other franchisees’ business.
Selling the business
You can always sell your franchise agreement to another person. You must first obtain the written consent from the franchisor which cannot be unreasonably withheld. You should always review the terms of the franchise agreement in relation to your rights to sell the franchise business.
There is generally a set procedure for franchisees who want to sell their franchise. The franchise agreement usually provides that the franchisor has first right of refusal to purchase your franchise business.
You should note that while selling the franchise may seem like an easy way out, if you are losing money, it could be very difficult to get a good price for the business.
Ask for help
As a franchisee, you are running a business which directly affects the reputation of the franchisor. The franchisor should be equally concerned about whether or not your business is profitable. Usually in the franchise agreement, one of the standard responsibilities of a franchisor is to provide ongoing support to franchisees by way of providing technical and operational advice and assistance when requested. The franchisor also has the responsibility of overseeing the operation of the franchise network and the performance of each franchisee.
If your business is heading south, you should seek advice and assistance from the franchisor as it is usually in their best interests to see your business thrive.
Operating a franchise business can be a very profitable venture. However, as with any business, there is always the risk of the business not succeeding. It is always helpful to identify issues with the profitability of the business early, so you can try to address and possibly make changes to resolve the issues. If matters don’t improve, in the first instance, we recommend you consult a franchise lawyer to discuss what options you have under your franchise agreement.