Know Your Rights in Case Your Franchise Fails
by Carrie Hinkel on March 13th, 2008
The U.S. Department of Consumer Affairs reports that less than 5 percent of all franchises end up failing, as opposed to non-franchise companies, whose failure rate is 30 percent. Those seem like great odds until you’re a franchise owner in that 5 percent, left with an empty bank account and a worthless business. If that happens, you’ll be left wondering if there’s anything that can be done. And the answer is, maybe.
There have been many owners of failed franchises who have sued their franchiser – and won. The reason for their store or restaurant’s demise may have been because a franchiser over-stated earnings or under-stated costs. Or perhaps, little or no help was given in training, or there was little or no on-going support. These are all things that are inevitably crucial to a franchise’s success. If you believe that you may be a victim of "franchiser embellishment abandonment", you may have grounds for a lawsuit.
Steps to take when you believe your franchise failed
because of the fault of the franchiser:
Step 1: Seek out an attorney. You can find a list of franchisee-specific attorneys on the American Franchisee Association’s website, as well as helpful information on franchisee and small business laws that may work in your favor.
Step 2: Know your franchisee rights. Read over the Small Business Franchise Act of 1999 and see if your franchiser is in violation of any of the terms. If you are uncertain, make notes of questionable areas and then ask an attorney.
Step 3: Find your evidentiary support. Go back and read through any written correspondence between you and your franchiser (including contracts and emails) and see if there is any written evidence of exaggerated claims or promises as to the amount of training or support that will be given.
Step 4: Research other failed franchises. Do some research and see if other franchises have recently closed and why. You may indeed find that the franchiser has a habit of broken promises and inflated claims. You may even want to call other existing franchise owners to see what their experience has been. Also, do a Google search on the franchise company and the franchise contacts you dealt with to see if there are any online posts about them that are relevant to your situation. If so, get your printer ready!
While there are several reasons a franchise can fail because of the fault of the buyer, there are other cases where the franchiser is obviously at fault, basically leaving the franchisee to fend for him or herself after taking the franchise fee. If your case falls into the latter category, then there’s no reason why you should have to just shrug your shoulders and say "oh well" after you realize your franchise isn’t making a comeback. Instead, get the law behind you and fight back! If your franchiser told you everything you wanted to hear (stretching the truth all the while) to get you to hand over that franchise fee, then there’s a good chance that you’ll end up with the last laugh!