What Are the Challenges to Becoming a Franchisee?
May 17, 2012
Becoming a franchisee is generally viewed as a safe port of entry into business ownership where entrepreneurs can experience success by joining an established brand. While the advantages to entering a franchise system are numerous, prospective franchisees should also be aware of the many challenges which they might encounter.
Franchising provides some form of a safety net to franchisees in that the time and money to crystallize the brand’s goodwill have largely already been invested by the franchisor. However, the trade-off is that in order to maintain a consistent chain of businesses offering consistent products and services, franchisees lose a substantial amount of control over their business operations. This surrender of control to a franchisor means that franchisees should expect to comply with formal standards, purchase from approved suppliers and receive regular inspections from head office.
Franchisees do sometimes take issue with the list of approved suppliers as they may feel that they can locate better prices for the same inventory elsewhere. Franchisors are entitled to receive volume rebates and discounts as a result of the group buying power which it coordinates, so franchisees should be aware of this product purchase restriction.
Franchise agreements will also maintain a lengthy list of potential defaults by a franchisee of the franchise agreement which entitles the franchisor to penalize or terminate the franchisee. It is rare that the franchisee is granted reciprocal rights to terminate the agreement based on the actions of the franchisor.
In recognition of this imbalance of power, franchise law exists in several provinces to protect the franchisees from being abused by a franchisor. Franchisees should be sure to carefully review the rights and restrictions contained in the franchise disclosure document to ensure that they are making informed investment decisions and can survive within the franchisor’s standards.