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WHO HOLDS THE UPPER
HAND? By Ron Bruno, AFA Affiliate Member More than a decade ago representatives of various franchisee organizations met in San Francisco to form the American Franchisee Association (AFA). I was privileged to be one of the franchisees among that group. At that first meeting what was most striking to each of us was the similarity of our issues with our franchisors. Indeed, whether we were selling mufflers, eyeglasses, groceries or fried chicken, our problems were the same. The relationship between franchisees and franchisors has always been filled with inherent conflicts almost always resolved in favor of the franchisor. The nature of their contractual obligations places franchisees in an extremely precarious position that few are willing to acknowledge until it is too late. Franchisors and their legions of lawyers hold the upper hand. They do not hesitate to assert their power. Recent economic conditions have led to major challenges for franchisees. These include relationship issues with their franchisors, liquidity and difficulty in meeting their fixed obligations. As capital markets have dried up and multiples were sharply reduced, franchisee equity has vanished. Access to working capital has also been limited. As a condition of restructuring their debt, franchisees have been asked to submit to burdensome agreements limiting their opportunity to prosper or even survive. They have been coerced into signing releases in exchange for much-needed pennies. We are witnessing a more aggressive approach by franchisors often accelerating their effort to extend control over their systems and improve their own profitability. This includes everything from expensive facility enhancements to unreasonable and restrictive “workout” programs. None of this is good news for you. In a franchise, serious potential threats arise from the possibility of a default in addition to normal business risks. These include personal obligations to franchisors, lenders, landlords, creditors, partners and employees. These can be triggered by a single act of the franchisor over which you, as a franchisee, have no control or into which you cannot provide any meaningful input. These risks are very real. Make no mistake about it, you are on your own and you do not have many friends out there. You are, however, not defenseless. You can prepare for or counter possible attacks. From the initial purchase throughout the operation of the franchise, you can protect yourself at every stage but you must be willing to face the realities. You need to develop a mindset such that you can realistically evaluate your position and “opportunities” as they develop. You need to appreciate your vulnerabilities and plan to address them now. The risks are enormous and your personal time is limited. You need to act individually and you’ll most likely need professional help. If any of the above sounds familiar and you’d like to talk, please contact me at 843-842-2222 or ron@franchiseadvocates.com. |
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AFA Enews - March 12, 2004 - Volume 2 Number 3 |
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American Franchisee Association |
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(312) 431-0545 |
