Managing franchise relationships is a key indication of how successful a franchise system will be. Every franchise system is only as strong as its weakest franchise franchisee and that relationship is paramount to succeeding as a franchisor. While being proactive as a franchisor can quell any potential franchise relationship issues early on, what are the steps franchisors can take to help repair damaged or failing franchise relationships? This article will address the warning signs of a struggling relationship, steps to take in repairing that relationship, and what franchisees and franchisors can do to avoid termination.
Key signs the relationship is struggling
A lack of support, whether perceived or actual, is the biggest component of a struggling franchise relationship. A franchisor should understand their obligations under the franchise agreement and continually ensure that they are meeting these obligations. A proactive franchisor will seek out feedback from their franchisees to gauge how effective and appreciated these services are and finding ways to improve. This can be achieved through franchisee advisory councils, sampling, surveys, or in person discussions. Franchisors should be willing and excited to engage with franchisees and find any potential flaws in the support services well before any franchisees become disgruntled. The second key sign of a struggling relationship is related to the first, lack of communication. Even when support services are meeting the requirements of the franchise agreement and are effective in assisting franchisees, a lack of communication from the franchisor can cause frustration and aggravation among franchisees. Franchisees typically look to the franchisor to leadership along with business support. When a franchisor is not willing or able to communication important information about the system, industry, and business in general, then franchisees will start to look outside of the system for leadership. Communicating to franchisees is an important aspect of building and improving the franchise system. This can be done with as simple as a system wide newsletter, franchise advisory meetings, and even personal visits.
The last sign that the franchise relationship is struggling, and often failing, is poor operations from both a franchisor and franchisee perspective. Operations are the foundation of the franchise system which gives exponential power to a brand that is franchised. When a customer knows that they can expect and receive the same service and products from any unit of the franchise system anywhere, that gives power to the brand and ultimately revenue. Maintaining standard operations across the board can be time consuming and challenging for any franchise system but it is essential. Standardizing your operations – and how you evaluate those systems – will help you better identify deficient franchisee operators or failing operational standards. If your franchise system has a difficult time with operational standards or enforcement, it is likely time to call your franchise attorney or your franchise consultant to help correct any drift from the system standards. This will be the hardest sign of a struggling franchise relationship to correct but as long as both parties are willing to find a solution it can be done.
Steps to take to improve the relationship
Seamless communication between franchisees and a franchisor is one of the pillars of any great franchise system. If there is a souring of relations, improving communications should be the first step in any relationship repair. Often times giving the franchisee a single, responsive source for all important communications can get the ball rolling and a dialogue started to start the process. As mentioned above, one of the proactive ways of opening communication for some franchise systems is to create some form of franchisee council to encourage feedback. Others will attempt a one to one facilitation, it can be helpful to have the franchisor’s attorney or consultant assist in the process to provide a balance forum for both franchisor and franchisee to comment. Either way, the important thing is to open communication lines with your franchisee before the breaking point and termination.
If the issues between franchisor and franchisee are primarily operational, one way to help get the franchise relationship back on track is to support the franchisee and their employees with re-training. Re-training is a key component to keep franchisees apprised up operation and standards updates and maintaining oversight over important customer facing processes. Most franchise agreements allow for franchisor to determine when additional training requirements are necessary for the franchisee. Utilizing this tool when there are operational issues helps keep the franchisee appraised of where and how it can improve to resolve those issues. Franchisees may be reluctant to undergo further training, often at their expense, but offering the training, any other support available, and emphasizing collaboration could help interest a defiant franchisee.
Avoiding Termination
The ultimate point of repairing the franchise relationship will be to avoid termination. Termination of a franchise agreement is disruptive to all parties involved and should be avoided until necessary as a last resort. A franchisee facing a default and termination should take careful steps to cure any real or potential default and risk termination. Termination for a franchisee would forfeit all fees already paid to the franchisor, surrender of the franchised unit, and potentially a payment of future royalties or liquidated damages on termination. Despite this, some franchisees will remain defiant in the face of the total loss of their franchise business due to strong emotions about the situation. Unfortunately, there are not many options to resolve a dispute with an emotional or unreasonable party. Often these are the situations which lead to termination and litigation between the parties. As a franchisee, you should strive to not take business issues personally and to make reasoned decisions based on what is best for the business. This may mean swallowing your pride and complying with standards or directives which you feel are unfair or silly but that will be your contractual obligation.
Franchisors should take steps to help ease a noncompliant franchisee back into compliance without being overly oppressive so as to not further inflame any disputes. Taking the time to listen to complaints and offer reasoned solutions within the bounds of the franchise agreement can be helpful in lowering tension and moving both parties to a resolution. If a franchisee remains defiant often times the only steps left to a franchisor is termination and potentially even litigation. This is indicative of how much franchise relationships rely on the willingness of both parties to be involved and act in good faith. Should one fail to be interested in maintaining the relationship there is often little left for the other party to do.
If your franchise relationship has become strained, get Reidel Law Firm on your side to help resolve the issue and protect your investment in the franchise business. Reach us by the email button below or by calling us at +1(832)510-3292.
