Franchise Advice
Avoiding the two-year itch
Director at Owen White Solicitors Russell Ford details what can be done to prevent disputes between franchisor and franchisee down the line
I
n 25 years of advising franchisors and franchisees who get into dispute, one scenario has arisen time and time again. That is the itch that a franchisee can get at around the two- year mark – this is when they sometimes begin to question the value of the ongoing fees they pay to their franchisor. This can occur most commonly where the franchisee is paying a percentage of turnover as a management services or royalty fee.
At the beginning of the relationship the franchisee should be receiving substantial support and attention. The franchisor is holding their hands through those fi rst steps as the franchisee embarks upon and
launches their franchise business. Their queries are dealt with promptly. Members of the franchisor’s head offi ce are on hand to deal with all sorts of queries. The franchisee, ideally, feels well supported and yet they are paying a relatively modest amount per month because their business has not yet got off the ground and turnover is low. Two years on and the situation may be
diff erent. The franchisor may be focused on new starters or paying attention to its big hitters. The franchisee may not feel he or she needs as regular support because they understand the business, they are walking on their own two feet and do not need much help. However, they are now
paying much more per month, and there can be a sense of disconnect between the level of support and fees paid at the outset with the support now required and the fees being demanded.
Some franchisees can resent this, not understanding the lifecycle of the agreement, as the franchisor eff ectively subsidises the early years of trading by giving high levels of support with little income in return. Other franchisees may feel so adept in business that they no longer value the franchisor’s support or brand and think that the percentage fee paid out per month would be better off in their own pockets. Franchisor and franchisee fi nd fault with each other.
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BusinessFranchise.com | December/January 2017
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