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Franchisee-Franchisor Partnership Break-Up is Costly for Both Sides

Franchise partnership break-up

Franchise partnership break-up

We are always ‘reminded’ by various publications on franchising, online and off line, that franchising is expensive, and bailing out from the franchise agreement is costly for the franchisee.

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

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One Response to “Franchisee-Franchisor Partnership Break-Up is Costly for Both Sides”

  • win your ex back:

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