Owning a franchise can be an incredibly positive and empowering move. If you are naturally inclined to entrepreneurship or have just become disenchanted with the corporate landscape, franchise ownership is a way to move forward with your own business without the startup costs and risk associated with developing your own business plan and success support system.
The Cost of Structure
As the saying goes, there is no such thing as a free lunch, and the extensive benefit of ready-made corporate support for your franchise endeavor comes at the cost of substantive and sometimes non-negotiable rules and structure for your business. This unique relationship between franchisor and franchisee results in high levels of franchise litigation. Many franchise companies have uniform franchisee programs, and many agreements are unilateral in nature and written from the franchisor’s perspective. These agreements come with a litany of things a franchisee must do and sometimes an even longer list of what a franchisee cannot do.
Franchisees will go into these ventures with strong expectations of projected earnings as well as the type and amount of support they will get from their affiliated corporation. When earnings don’t meet expectations or support received is perceived as less than expected, these relationships start trending toward litigation. Typical litigated issues involve violations of covenants not to compete, encroachment violations or earnings. Covenants not to compete are often violated when franchisees perceive a lack of support to thrive and decide to continue on in their business without the franchisor’s trademark. Encroachment violations are typical when a franchisee thinks the franchisor has placed a competing unit in too close of proximity to their own business.
Franchise ownership has pros and cons, and whether or not it is a fit for you depends largely upon your unique situation and the amount of control you want over your business. Being aware of the major reasons you could end up in litigation, however, is a good first step to understanding the franchisee landscape.