Forums: Discussions for entrepreneurs and small business.

   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.

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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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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James Lindon, Ph.D. Patent Attorney
Lindon & Lindon, LLC
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[this is not legal advice - provided for discussion only]
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"Fools rush in where angels fear to tread."
http://www.LindonLaw.com

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The Extra Money Blog
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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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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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The older we get, the more excuses we make for not chasing after our dreams. But truth is, goals are attainable at any age.

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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want to make money with a franchise? start your own!

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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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Dale
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