The general rule of thumb in any business agreement is: read every word, and don’t forget the fine print.
Not to discredit franchisors, but some seem to have a subtle intention to “trick” franchisees into signing for franchise agreement. Alas, we can’t ask for franchisors to guarantee anything – they can’t, and even if they do, they are considered as both unethical and illegal.
The truth is, you and I can’t put all the blame to the franchisors or ask them to guarantee something. Sure, some “bad” franchisors do deserve some of the blame, but they will be taken care of via lawsuits. Now, this is always a situation where “it takes two to tango.” Franchisees are also the ones to blame for their under-performing or failing franchise units.
Bottom line, you need to do your due diligence in making sure that you are partnering with the right franchise. Here are some pointers to help you discover which franchises are the ethical ones:
1. Is a franchise a member of franchise trade associations?
First of all, you need to make sure whether the franchises you are interested in are actually members of a certain franchise trade associations, such as the International Franchise Association (IFA.) Those associations screen and monitor their members’ ethical business practices – this can help you to easily rule out the unknowns regarding a franchisor’s reputation.
Legal matters are always difficult to assess – there will always be a chance to miss a thing or two. You should consider to hire a lawyer who specialize in franchising to analyze the franchise agreement to make sure that the essentials are well-covered and that you are fully understand what you will be signed upon. Also watch out for any earning claims made by the franchisors – promises and guarantees a certain amount of income can mislead you and they are clearly illegal. And more issues to cover and be understood before you sign the agreement.
3. Do you feel being pressured to sign any legal documents quickly?
It’s actually only logical for franchisors to have you sign the franchise agreement fast, but if you feel that you are pushed by your franchisor to sign and/or make a certain amount of payment before the wait and review period ends (it’s 10 business days in the US,) you must red-flag the franchise.
4. Are the existing franchisees and customers saying good words on the franchise?
This is important and from my experience franchisee candidates seem to rule this out – you need to talk to the existing franchisees – are they giving you positive words about the franchise? Are they doing ethical business practices? Also, you should check on customer’s testimonials – are they happy doing business with the franchise you interested in? Do they think the franchise is ethical? To check, you can just visit the existing franchise locations and/or searching for testimonials and opinions online.
One last advice: Trust your gut feeling. If everything seems legitimate but you don’t feel comfortable working with the franchisor, you should step back and take more time to consider your options. Remember, you will partner for quite a long time with your franchisor, and you clearly don’t want to end up in a bad relationship throughout your agreement period.
Ivan Widjaya
Read your franchise agreement – if you can’t, hire someone who can read them for you
Image by discoodoni.
