Alistair Gregory, a partner in Beyond Corporate’s dispute resolution team works alongside Beyond’s franchise team and shares in this article his thoughts and observations as to how the disputes he has dealt with both for franchisors and franchisees could have been avoided with sensible pre-contract discussions.
It’s not you it’s me
The question as to whether a franchisee and franchisor will work well together should be fairly obvious in the initial pre-contract meetings. The tell-tale signs will be there – is there passion for the brand? is there motivation? Such issues need to be present from both parties with both parties needing to be fully aligned as to the nature of the franchise – what are the franchisee’s income needs/personal circumstances? Is this a full-time income generation or just a part-time lifestyle venture?
The old adage‘ people do business with people’ is never more relevant, some people are never happy and can be a vacuum of positivity – if the signs are there at this initial stage it is highly unlikely that person will change.
This time next year we’ll be millionaires
Financial expectations of the franchisee and franchisor need to be realistic. If the agreement does not specifically set out each parties’ understanding of what has been promised, there is scope for dispute. Of course, the marketing will be glossy but are the figures/promises in there robust and reflect the experience of current franchisees? As a rule of thumb, work on the principle that if it’s not in the agreement it’s not binding you will not go far wrong.
Wise people learn from the mistakes of others
Engage with other franchisees to get the unvarnished version of how life is as a franchisee. As potential franchisee that should prove invaluable and the franchisor should not have any issue if the franchisees are a happy band of brothers, and/or sisters.
It’s all in the detail
Reading and understanding the franchise agreement for the first time when things are not going well is not likely to end well. Before entering into the franchise agreement basic questions should be asked by the franchisee – like ‘what if I change my mind’? ‘how can I get my money back’? what if no help/support is offered? what if I get ill? what if I don’t perform? what if the franchisor fails to deliver? (and the franchisee should have many more questions). If franchisees cannot satisfy themselves as to what the agreement says and how it works at the initial stage, they will be in trouble when things go wrong.
