If you research franchising or franchise law online, you’re likely to discover conflicting ideas and advice. Like many areas of business law, misunderstandings and misconceptions about the franchise process are common. This is true for the franchisor as well as the franchisee.
Below, we debunk three of the most common franchising myths that apply to franchisees.
Franchising Myth #1: Franchise Agreements are Non-Negotiable
It is a commonly held belief that franchise agreements cannot be negotiated.
You may have read or heard that franchisors use the same contract or agreement for all franchisees, for the purpose of standardization or to keep the playing field even for everyone. Consistency is important in franchising, and the legal agreement protects the brand.
In truth, franchising agreements, like most issues related to business law, are often negotiable.
Of course, franchisors may be reluctant to discuss changes to a franchise agreement, especially early in the negotiation process. Also, many parts of the franchising contract will not be open to negotiation, such as those that address the description and rules of the business systems.
A skilled franchise attorney will understand the restrictions and know how to propose strategic modifications that could limit your liability and protect your rights.
Franchising Myth #2: Marketing is for Franchisors
Who pays for the advertising for a franchise business?
Many people mistakenly believe that marketing the franchise business is the responsibility of the franchisor. While many franchisors do engage in regional or national advertising campaigns — and most franchising contracts specify required ongoing payments for the purpose of marketing — these efforts are generally geared to benefit the brand as a whole, and not a single franchisee.
As a result, all franchisees may not benefit equally.
For this reason, franchise owners are usually required to engage in local business marketing and promotion. Most franchisees are obligated to spend a pre-established sum on advertising each month, and to use marketing strategies and tactics that help bring in new customers.
Franchising Myth #3: You Can Sell or Quit Your Franchise As You Wish
Your franchise agreement is a legal and binding contract. The term (typically 5-20+ years) is the time you are obligated to keep your franchise business in operation and running. Exiting a franchising contract is a bit different from selling or quitting a stand-alone, independent business, and it may be more difficult than you think and if you close or stop operating without approval, it could cost you.
Most franchise contracts have conditions that must be satisfied prior to exiting the business.
The franchisor may have the right of first refusal, meaning that they must be granted the opportunity to purchase the franchise prior to it being offering to others. In addition, selling your business may involve the payment of hefty franchise transfer fees. You also may be required to pay for the training of new owners.
Exiting your franchise agreement without following the conditions may be considered a breach of contract, and your franchisor may be entitled to monetary damages, including the payment of ongoing royalties through the end of the term of the franchise agreement. If you are set on selling or quitting your franchise, however, an experienced franchise attorney may be able to help negotiate an early exit from your contract.
The professional attorneys of the Franchise & Business Law Group, located in Provo, Utah, are Northern Utah’s franchise and business law experts. Contact our office today to schedule your consultation to discuss your questions and learn more about the advantages of franchising.