What to do when you franchisor fails to deliver

By Sarah Stowe | 13 Dec 2017 View comments

Inside Franchise Business: take the right action if your franchisor fails to deliverYou want to buy a franchise..well, let’s look into the future…

You took the leap of faith and became a franchisee, congratulations!

You used your equity in your home to establish the franchise and you are working 60 hours a week but the promise of living the dream hasn’t quite eventuated, whether in lifestyle or financially.

You sought advice from your lawyer and accountant, and spoke to other franchisees before you committed.

Now that the initial excitement has settled and you are eight months into the business you have concerns that the franchisor and/or the system is failing to deliver on its promises. It could relate to a lack of support, issues with stock and supply, the operational costs being greater than what you were advised, the cost of goods being higher than predicted but it just isn’t working.

So how do you deal with this?

Once you commit to a franchise, there is no easy exit.

You took the plunge and now you need to consider the options you have available. The initial reaction is to panic and blame someone, anyone,  but you may need to accept some responsibility – after all you made the decision to go ahead.

First step, take a breath, take a step back, and firstly, try to be objective: have you followed the franchisor’s system, advice and policies? Can you identify what it is that is not working? Did you have adequate training? if not, did you tell the franchisor you didn’t feel ready to start?

Even if you successfully completed the franchise training, you may feel like you need additional support in the first few months.

Don’t be afraid to ask for help.

Most franchisor’s will take that as a positive, and be happy to support you if you ask. It is in their interests to ensure you are up and running successfully.

But what if the franchisor doesn’t respond to your concerns or request for assistance?

Bear in mind that most franchise agreements are worded in such a way that the franchisor is not contractually obligated to “do” anything.  The franchise agreement may use terms such as “…the franchisor may in its discretion…” do certain things.This does not mean the franchisor must do those things. If he fails to do those things, it is not in breach of its contractual obligations.

Despite this, a franchisee can rely on other obligations under the Franchising Code of Conduct to require a franchisor to deliver on its promises.

The Code now includes a mandatory obligation on both parties to act in good faith so franchisors are required to respond to issues raised by their franchisees in a reasonable and timely manner.

There is also protection to franchisees under the consumer laws, if a franchisor has engaged in misleading and or deceptiveconduct, failed to comply with the Franchising Code disclosure requirements or is acting unconscionably. These are, however, far more difficult grounds to establish and a costly way of dealing with the issue in dispute.

What to do when the franchisor fails you

1. Call for help – Ask the franchisor for help support and or assistance – this could be further training in a specific area for example stock control, point of sale, product placement, converting leads to sales.

2.  Identify what you believe is not working and tell the franchisor in a professional and businesslike manner.

3. Put it in writing – emails are evidence and can be relied on.

4. It is business, so be professional and business like.

5. If the response is inadequate or non-existent from the franchisor, try and speak to someone higher up on the Board or one of the directors. Often, they will act if it is brought to their attention.

6. Seek legaladvice from an experienced franchise lawyerand get financial advice to consider your options- arm yourself with information and data that you can supply the franchisor about the financial impact on your business.

7. Identify if it is an operational issue that can be fixed so you can get on with business or is it a deal breaker, end of relationship issue.

8. Communication on a professional level and in a genuine and calm manner will go a long way to getting the franchisor to cooperatively work with you.

9.  Raise the issues with your franchise advisory committee (FAC) if you have one.

10. Consider with your franchise legal advisor if the mater should be escalated in writing, but in a non-litigious way or if mediation may be a good forum to focus the franchisor on your issues.

What not to do when the franchisor fails you

1. Don’t become a leper in the system – you then become targeted as the difficult or unreasonable franchisee and are far less likely to be offered help over other franchisees.

2. Do not resort to abusive or threatening behaviour or threaten to go to A Current Affair, stay focused on the issues at hand.

3. Don’t threaten to gather other franchisees for a class or group action; these actions only crystallise a gulf in communication. Each franchisee has to fight their own battle and may want different outcomes.

4. Remember don’t threaten litigation unless you mean it otherwise you look weak.Litigation is costly and provides no quick fix. Franchisors generally have deeper pockets than franchisees so litigation is really a last resort. Get advice from a specialist Franchise lawyer at an early stage to discuss solutions and strategies.