Unfortunately, not many realise that not only franchisees, franchisors are also financially affected by the franchisee-franchisor partnership break-up – And that is just the tip of the iceberg.
Break-up costs to the franchisee
It is obvious that the franchisee will be severely hit by huge monetary loss due to ‘the-usuals’ in the franchise agreement – The non-competing agreement and the right for the franchisor to terminate the franchise agreement almost at will.
The non-competing agreement – Usually, the franchisor requires its franchisees to comply that when the partnership is broken, the ex-franchisees are not allowed to open their own business offering the same or similar products and/or services for a certain period of time.
Franchise agreement termination by the franchisor – The franchisor holds the rights to terminate the agreement when agreement infringements done by the franchisees occur.
Break-up costs for the franchisor
Franchisors are exercising such harsh ‘punishment’ to the non-cooperative franchisees for one similar reason: To protect their business and brand name.
Of course, the ‘level of strictness’ differs from one franchisee to the others, but all are exposed to the similar risks.
The obvious – financial loss. Cleaning up the mess is resource-intensive, especially if the partnership break-up involve legal issues and lawsuits. One should be aware of such a risk and its consequences, learn about Xarelto lawsuits, for example, as well as other types of trials.
But that is just the tip of the iceberg – ‘Thanks’ to the word of mouths, bad reputation spreads like wildfire on a dry season. Some dissatisfied franchisees (and ex-franchisees) are gone berserk, venting their dissatisfaction (and anger) in public.
No wonder the franchisors I knew are somewhat distressed by the whole situation.
Break-ups are destructive – Avoid them at all cost
Just like in any other relationships involving people, break-ups in franchise partnership is really destructive for both the franchisors and the franchisees. This, eventually, will give franchising a bad name.
In my opinion, there’s a best practice that every franchisor and franchisee should do on their own:
Franchisor – Prepare your franchise agreement accurately and rigorously. If you couldn’t, you have to hire a franchise lawyer.
The similar suggestion also applies to the franchisee: Read the franchise agreement thoroughly word-by-word – If you couldn’t do a thorough analysis on the agreement, you should hire a franchise lawyer.
Remember, break-ups are not win-loss situations – They are loss-loss situations – So, avoid break-ups at all cost.
Ivan Widjaya
Healthy franchisee-franchisor relationship is king
