The franchisor-franchisee relationship is incredibly important to the success of a franchise business. However, sometimes disputes are unavoidable and litigation is the only way to resolve a disagreement or determine a party’s liability. This can be both emotionally and financially draining and distract you from running your franchise network.
Every franchise dispute will be different and have its own varying circumstances and underlying facts. However, following these simple tips can help you to avoid problems becoming disputes, or in the event that litigation becomes necessary, hopefully put you on a stronger footing in proving your case or limiting your liability.
- Effective recruitment. Typically, if you are more relaxed in your approach to recruiting franchisees, there is a higher chance that you could end up in dispute with one of them. Franchisors often base their recruitment of franchisees more on their ability to pay the franchise fee rather than their suitability as a franchisee. To maximise the recruitment of successful franchisees, you should assess the characteristics of your best franchisees, and use those as a matrix to assess prospective applicants. An effective recruitment strategy will also help you avoid taking on franchisees who think they are buying a job, rather than a business that they are responsible for running and developing.
- Adequate drafting. Whilst it may be tempting to download a franchise agreement template from the internet in a bid to save money, this could well backfire in the long run. You should always use a professionally drafted franchise agreement to ensure that both you and your network are adequately protected legally from the actions of rogue franchisees.
- Thorough training. Ensuring that your franchisees are properly trained and supported at the launch stage of a franchise will start the process on the right footing. Starting as you mean to go on, franchisees will not be able to complain at a later date that they did not receive training or support, that it was inadequate or not what they expected.
- Open space for discussion. Franchisee committees and forums, if properly run and moderated, provide an excellent forum for franchisees to air their concerns and grievances. Start by appointing a representative of the committee or forum. You can then liaise regularly with them allowing your franchisees to feel that their voices are being heard and their views taken into account in relation to key strategic decisions. Hopefully this should reduce the likelihood of disputes arising. You can also use the franchisee committees and forums to your benefit when introducing any changes to the network – a consultative approach will usually be more successful than imposing changes unilaterally, and will hopefully reduce the level of ill-feeling among your franchisees if you have to introduce unpopular changes to the system.
- Mentoring system. Utilising your experienced franchisees as mentors can be invaluable in supporting franchisees and acting as a point of contact between franchisor and franchisee. It is unlikely that there will be many issues that an experienced franchisee would not have previously come up against.
- Dealing with bad franchisee behaviour. You should not ignore breaches by any franchisee, regardless of their success. Ignoring behaviour which is contrary to the franchise agreement or operations manual, potentially creates greater problems further down the line. Also, by not tackling errant franchisees, you will be setting a bad example to the rest of your franchise network and the failure to follow the system may spread to other franchisees. If you allow your “maverick” franchisees to get away with not following the system, you may end up devaluing your input in their eyes, which could lead to conflict going forward. If a franchisee has new ideas for the system; consider whether they are good enough to take on and roll out across the network, and recognise their contribution in some way – for example by an award.
- Financial evaluations. You should regularly review financial information from your franchisees. Not only will this enable you to monitor their performance, but also allow you to be able to spot problematic trends arising. Regular reviews will likewise help both you and your franchisees prepare in good time for renewing their agreements, selling on or simply ceasing to trade.
- Frequent review. Your operations manual is probably the most important tool of your franchise business. Regularly reviewing and updating your operations manual will ensure that your systems are in line with commercial reality. The world of business constantly evolves and things can change rapidly, so keeping up to date with any developments in your market-place is vital. If you do not and your franchisees struggle to compete, then resentment is likely to grow.
- Dealing with breaches. If a franchisee fails to follow the system, you probably don’t want to prematurely escalate the situation with a legal letter. Consider using a tiered warning system for breaches. By adopting a system of tiered written warnings, you will hopefully bring an errant franchisee into line before things get out of hand. They will also get used to what to expect if they do not follow the system, hopefully meaning that they will stay in line.
- Seek advice. If a dispute does arise, take appropriate advice at an early stage. Expert legal advice will provide you with certainty of your legal position and hopefully put you in a better position when it comes to dealing with a problematic franchisee. By spending a modest amount on legal fees at an early stage, you will hopefully avoid a dispute becoming a costly court battle.
This post was written by Darwin Gray. They are an exhibitor on the FranchiseShow247 Business & Professional services floor. You can visit their FranchiseShow247 exhibition stand here.