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Permalink Reply by Eric Stites on October 12, 2011 at 2:45pm

Collette - this is a great question given the current economic realities of the world, and I'm sure a lot of franchisees are pondering a similar question. Obviously, when a franchise organization runs into financial difficulties, it can create a lot of turmoil for all the franchisees of that organization. But it doesn't have to be the "end of the road" for your business necessarily. I've seen several different scenarios play out...

1.) While your franchisor owns the rights to their brand and proprietary systems, you own your own business, and in many cases there is little stopping you from re-branding and re-forming under a new name and operating independently. Obviously, you will want to consult with your attorney on the details of your current franchise agreement, but enforcement of any non-compete agreements would be difficult assuming your franchisor did go "belly up".

 

2.) A more positive outcome, which I've seen work very successfully is when a group of franchisees band together and purchase the franchisor. Assuming you and your colleagues see value in the brand and systems, this would be a win-win scenario. Ground Round is a great example where a group of franchisees stepped in and acquired the company out of bankruptcy, and now the company - while much smaller than its peak growth days - is well on the road to recovery.

 

Bottom line... while financial difficulties can be very stressful times for both franchisees and franchisors, it can also present opportunities to reorganize and ultimately create a stronger franchise system.

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Permalink Reply by Collette Howell on October 12, 2011 at 3:09pm

I agree that the non-compete might would likely be a non-issue. Is it typical for an owner (even if rebranding) to be permitted to continue using the existing materials and methods just as before so as not to strand the customer or imperil contracts that are multi year in nature?

 

I recognize the materials woould not be updated or improved....that would fall to me.

 

Thank you.  

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Permalink Reply by Eric Stites on October 12, 2011 at 3:40pm

Sales and marketing materials, along with any other proprietary and/or trademarked materials (for example, learning materials, lesson plans, etc.) would not be able to be used. You'd have to recreate everything from scratch and branded under a different name... not an easy thing to do! And as for existing customer contracts, I'll leave that up to your attorney to review and comment on.

All of this said, I would highly recommend trying to work things out with your franchisor first. If you can't work things out, then you will need to officially terminate your franchise agreement - assuming you have grounds to do so, and iron-clad proof that your franchisor is not able to meet their minimum obligations.

It's worth repeating that the best case scenario is working things out with your franchisor and continuing on with your current business and brand. Starting over from scratch is VERY difficult - especially given the current economy - and being part of a franchise system offers so many advantages that independent business owners don't have. For example, you wouldn't have become a Frantopia member if you weren't a franchisee to begin with! :)

Best of success, Collette!

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