When the economy went south, many franchisors began discounting products or services. Restaurant franchises began shrinking the size of portions on their menus, while retailers began offering flash sales, and home improvement franchises began discounting services. While these tactics may have kept these systems afloat for the time being, most franchisors would agree that, in the long term, they risk diminishing the value of the brand.

At some point in their lifetimes, many franchisors and franchisees, whether startup, mid-sized or large, and well-established in the marketplace, will consider raising outside capital.

While a franchisor may have the legal right to default a franchisee, there are many issues that a franchisor should consider prior to determining whether to send out a default letter.

Taking into account the franchise fee, royalty fees, working capital and other possible costs needed to start a franchise business, most potential franchisees find they don’t have the cash resources to purchase a franchise upfront.

Done consistently and correctly, royalty audits can benefit franchisors and franchisees alike by encouraging honest reporting.  

When you buy a franchise, you often can sell goods and services that have instant name recognition, and get training and support that can help you succeed. But purchasing a franchise is like every other investment: there’s no guarantee of success. The Federal Trade Commission, the nation’s consumer protection agency, has prepared this information to explain how to shop for a franchise opportunity, the obligations of a franchise owner, and questions to ask before you invest.  

“I can’t guarantee what you will make, but I can tell you what the average franchisee is making.”  

A well-constructed buy-sell arrangement can provide peace of mind for you and your family that there is a succession plan in place to help take care of the needs of all interested parties.

Franchisors should not rely on their “professionals” to put together the proper documents. A strong franchisor is one that “minds his or her own business.”