All relationships end sooner or later. However, a franchisor must take extra care when breaking up with franchisees
The nemesis of many franchisors is the subject of terminating franchises. It’s ideally the thing you try best to avoid. Unfortunately, sometimes it has to happen for the sake of the company as a whole.
When you do have to call it quits with someone in your network, you better get it right or the fallout of the breakup could end up wreaking havoc on your bottom line. So here are our top tips for how best to navigate the minefield of ending a relationship.
(1) Establish grounds, warn, repeat
Ask yourself if the franchisee’s actions constitute grounds to terminate the partnership. Look to your franchise agreements and list carefully the breaches in question. Consider not only those listed but lack of adherence to aspects outlined in the operations manual. If there are any complex areas or uncertainty seek legal advice to support your actions.
It’s important the process is transparent - the franchisee shouldn’t be surprised that their franchise is coming to an end. On the lead up to taking this step you should have served a series of default notices clearly stating concerns and giving your franchisee the opportunity to rectify the problem and to engage in dialogue with you. This helps establish clear grounds to take more drastic action.
(2) Get your ducks in a row
Termination is a messy business. There will be customer contracts, supplier contracts and other ongoing relationships that you will want to preserve.
Do what you can to ensure a smooth transition to neighbouring franchisees or if you’re able to exercise your step-in rights with care.
(3) Tell them where and when
Once deadlines have passed without the franchisee rectifying defects, confirm termination of their agreement and the necessary next steps. Specify a date to meet in person and address practicalities such as the handover of materials, stock and uniforms.
Unhappy franchisees may not be compliant in this process so be prepared for any lack of cooperation and to rely on what is hopefully robust contractual protection to recover what you need.
(4) Nurture stakeholders
Banks, suppliers, national accounts and other key stakeholders have a natural aversion to failing franchises as they’re likely to leave them out of pocket. So you should, where possible, take care to keep them in the picture so as not to prejudice future relations with these supporters for your network.
(5) Manage unsettled networks
Franchisee engagement is key to the success of your network – get ahead of the newswire with a carefully worded statement which ultimately allays the concerns of the network. Other franchisees are as invested in the brand as you are and equally intolerant of those that may be bringing it into disrepute. It’s therefore vital you’re one step ahead of the rumour mongers to manage this process.
(6) Learn lessons
From any failure there are key lessons to be learnt for the future operation of your network. Adjust franchisee profiles, vetting policies and operational processes and restructure systems that hindered the process of facilitating an amicable separation.
Revise franchise agreements that proved ineffective or prohibited more robust intervention. Build in engagement programmes across the network that identify problems earlier.
Franchise failures in any network are an inevitable part of the journey in franchising. Accepting this and having a strategy to manage the process is the smart way forward.