Lesson # 3 From Hard Luck Franchisees: Franchisor Reservation of Rights to Sell or Transfer Business
This is Lesson #3 in a five-part series on the top reasons I've seen franchisees fail.
Tucked away in nearly every franchise agreement is a provision that very few franchisees consider when they are purchasing a franchise business. The provision I am referencing gives a franchisor the right to sell or transfer its business to another person or entity. Now I am not saying that a franchisor shouldn't have that right. Of course a franchisor would like to reserve the right to sell its business as a succession plan or outright sale for profit. But unfortunately I've seen many franchise relationships change dramatically after the sale.
On many occasions I've found that the new franchise owners lack the spirit and care for the franchisee that the original owners may have possessed. The new franchise owners may not have the same goals or aspirations as the original owners. They may even change business models, pricing or marketing which could have a significant impact on your business. As a result, many franchise operations fail after the franchise has been sold.
If you are going into franchising, have careful and detailed talks with the franchisor about their goals. Find out if the franchisor is in talks with anyone to sell the franchise business or whether that is an ultimate goal of the franchisor. The franchisor may not always be candid with you but perhaps they will be and you will have gained valuable information in the process. If sale talks are imminent, you may be better off waiting to see what the new owner has in store for the franchise business. But no matter what be aware that the franchise business could be sold and consider carefully whether you are buying a "system" or whether you are getting caught up in the persona of the franchise owner. Because if you are buying the owner rather than the system, you may be in for a rude awakening if the franchise business is sold.
In the end, you are not likely to eliminate the risk that the franchisor could sell. An astute franchisor would not negotiate that provision away in a franchisor agreement. But consider that possibility from the start and whether the franchising "system" is right for you.