Franchise - breaking the contract

elvis1074elvis1074 subscriber Posts: 3
edited January 2009 in Home-Based Businesses
   I am considering investing in a franchise.  This may sound defeatist, but what are the conditions that a franchisee can get out of a contract.  If the business is floundering for 6-12 months and I am in financial distress would I be able to get out of the contract?  Just curious.  Thanks guys.
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Comments

  • WebJunkyWebJunky subscriber Posts: 8 Member
    it should all be in the agreement.  consult a professional and incorporate before you buy. buy the franchise under the company you form and avoid personal guaranteeing the loan. that way in worse case scenario your personal assets are protected.
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  • patentandtrademarkpatentandtrademark subscriber Posts: 103
    in most cases, you have to put up some money.  if the location does poorly, you will lose that money.  neither party wants to end up holding the empty bag - you or them.
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  • WebJunkyWebJunky subscriber Posts: 8 Member
    danielcm - absolutely correct. in many cases it is just like buying yourself a job with a huge downpayment.  just like a purchase money mortgage you will loose your intiial investment....
     
    that said - i just read that the #1 profitable franchise today is Quiznos....and you can get started for 65,000.  what they don`t tell you is that you have to sign your life away working 7 days a week (80 hrs per week on average) to make the ROI they project in a 5 yr span.
     
    cheers
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  • pepperlegalpepperlegal subscriber Posts: 2 Member
    Elvis,
    More commonly, franchisees in distress may look to sell the business to another franchisee.  This will require the approval of the franchisor, and typically an assignment fee (which in some cases the new owner can pay).  At the end of the day, the franchisor loses if you lose, so the franchisor will usually work with you on this.  I`ve worked with clients who have done just that.
    There are many risks in opening a franchise, so you would be well advise to consult both an attorney and accountant to assist you.
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  • nevadasculnevadascul subscriber Posts: 3 Member
    Franchising is not cheap.  Most parent companies require franchisers to have a large amount of money not only to buy the franchise.  But, to carry the business through for the first couple of years.  One company for example requires franchisers to have $500,000.00 in the bank to start with. 
    Also be careful of signing a lease agreement.  A business woman in California had her own business.  It was very successful.  After 11 years in business, she was approached by a large national chain.  They would set her up in a new location.  They would also give her enough money to replace all of her old equipment and hire more people to expand her business.  There was only one catch.  She would have to take the lease for the new location out in her name, not the national chain`s name.  Her stored failed at the new location within the year and she was left on the hook for the lease. 
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  • ShaunShaun subscriber Posts: 0
    If you sign-up for a franchise with a minimum monthly royalty then you are typically obligated to pay that until the contract is up. Most franchises want a personal guarantee. My suggestion is talk to at least 50+ franchisees before you buy and find out how the 1st 6 -12 months went for them. If the franchisor suggests you call xyz people skip them all together but talk to as many franchisees as possible.
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  • WebJunkyWebJunky subscriber Posts: 8 Member
    want to make money with a franchise? start your own!
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  • daleyfla99daleyfla99 subscriber Posts: 1
    I have a client up a creek with a franchise.  (cooked numbers in the prospectus).  Anybody want to buy a great Franchise in beautiful, 80 degree Delray Beach, FL.  $150K net to owner, business grosses $100K per year.  8 mos left on lease.  Serious buyers only.  Will sell business without the franchise and will execute non compete.  561-212-8479.
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