What’s a franchisee to do when its franchisor goes belly up?

Posted in Franchising on August 5, 2011

Have you been following the troubles of the Roni Deutch Tax Center (franchisor abruptly ceased all operations) and Jackson Hewitt (bankruptcy)?  Could be attributed to a number of factors—poor economy, outdated business model hurt by the emergence of online tax preparers and software programs, among others. 

For franchisees, all is not necessarily lost when a franchisor declares bankruptcy or suddenly ceases operations.  Depending upon the facts and circumstances, in some cases franchisees are allowed to continue day-to-day operations using the franchise name, logo, and system (i.e., business as usual).  In other cases, the franchise owners re-brand their business and continue operating as an independent business.  In yet other cases, a group of franchisees join forces and acquire the franchise system out of bankruptcy, typically through an owners’ cooperative or franchisee association.  None of these are quick, stress-free, or inexpensive options, but they have all been done in the past and remain viable possibilities under the right circumstances.

NASAA Advisory Offers Guidance to Prospective Franchisees

Posted in Franchising on March 1, 2011

The North American Securities Administrators Association (NASAA) recently issued an advisory designed to identify important issues and risks to carefully consider before investing in a franchise.  The publication emphasizes the importance of research, due diligence, obtaining professional advice, and approaching the entire process in a business-like fashion.  The advisory can be viewed in its entirety at:

http://www.nasaa.org/Investor_Education/Investor_Alerts___Tips/13910.cfm 

For a typical franchisee, a franchise agreement is arguably the most important contract one will ever sign in his or her professional life, thus it is not something to be taken lightly.  In Virginia, franchisors are required by law to negotiate with prospective franchisees over many of the provisions of the franchise agreement.  So if you are considering starting a new franchised business, you should have both the incentive and the opportunity to revciew and negotiate franchise agreement terms with the franchisor.  This does not mean you will get everything you ask for (or anything you ask for), but it does mean you have a seat at the bargaining table and by going through the process, you will gain a much better understanding of the contract and the franchise relationship and, therefore, be in a better position to make an informed business decision.