Making the Most of Your Franchise Investment

Many aspiring entrepreneurs turn to the world of franchising, drawn by the prospect of owning a profitable business they can eventually sell. A substantial 13% of franchisees, as revealed by the latest NatWest/bfa survey, enter the franchise landscape with the goal of making a sound investment.

However, the path to franchise success is rarely without its complexities. Prospective franchisees may be enticed by franchisors promising them the opportunity to sell their business down the road, but they often overlook the conditions tied to this promise. While most franchise agreements are explicit about these conditions, at the time of purchasing a franchise, franchisees are primarily focused on securing the franchise, launching their business, and assessing their potential to sell it in the future. The fine print tends to take a back seat.

So, what precisely are these conditions that govern a franchisee's ability to sell? They typically encompass:

1. Re-training, if necessary.

2. Premises refurbishment, if applicable.

3. Business upgrades to meet franchise standards.

4. Covering the franchisor's costs and, in some cases, a renewal fee.

5. Securing the franchisor's consent.

6. Giving the franchisor first refusal rights, at times.

While most of these conditions might seem innocuous, the critical factor often lies in the details. Obtaining the franchisor's consent is the condition that often poses the most significant challenge.

Franchisees must bear in mind that one of the primary objectives of franchisors is to maintain and uphold the brand's standards. This means ensuring that all franchisees meet the franchisor's criteria in terms of skills, financial stability, character, and other relevant factors. Just as franchisors meticulously select their initial franchisees, they exercise similar care when approving incoming franchisees who acquire a business from an existing one.

Consequently, it is logical for prospective franchisees to meet the franchisor's criteria and pass rigorous evaluations. However, some franchisees may feel uneasy about granting the franchisor full discretion in approving the sale of their business. It is a delicate balance, and franchisees often rely on the franchisor's reputation, consult with existing franchisees, and conduct thorough research to assess whether the franchisor has historically used its discretion reasonably.

While past behavior is not a guarantee of future actions, it is generally accepted that most prospective franchisees place significant reliance on the reputation of a franchisor within its franchisee network.

It's important to note that the relationship between franchisors and franchisees is not one-sided. Franchisors have little to gain from being obstructive, and instances of franchisors abusing their authority in this regard are exceedingly rare, based on my experience. It is crucial to distinguish between ethical franchisors and those who are not.

Therefore, prospective franchisees should exercise due diligence in investigating the franchisor's track record and background thoroughly. They should also seek expert advice when reviewing the franchise agreement, as the impact of the same set of conditions can vary significantly depending on the franchisor's ethical standards and practices.