"Hindsight is 20/20" is the last thing you want to hear when you've made your bed with the wrong franchise. Unfortunately, there are a few unscrupulous franchises out there with a business model that offers little chance of long-term success. So what if you are one of the unlucky souls that is contractually obligated to a loser franchise? Before waving the white flag, consider a few options:
Have you really done everything on your end to make it work?
It's easy to blame everyone else for our mistakes. However, don't give up just because they aren't being the franchisors they promised. Make sure you are doing everything within the legal limits of your FDD (Franchise Disclosure Document) to improve your operations & profitability. Often times, franchisors give a one size fits all answer that may not work for your location. Take what they say into consideration, but trust your own judgment as well. Lastly, ask to test new ideas. Struggling franchisors will generally take more risks because they are searching for answers as well. It may only take a few innovations to turn your business around.
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Network with other franchisees
Find the most successful franchisees in the system and ask them what they are doing. They may own multiple units where one is doing well and the other is not. They can tell you why something works for one location, but not the other. Find other franchisees that are in a similar boat as you and share information together. They may have a strategy or two that you hadn't considered.
Be patient and persistent If you have determined you are in an unwinnable situation, develop your exit strategy immediately. It could be a long process. Declaring bankruptcy can have major, long-term consequences that you'll pay for emotionally and financially for years to come. Before declaring bankruptcy, ask yourself a few questions:
Can I avoid litigation? If you walk out on your lease and your contractual obligation to the franchise, they have a legal right to file a lawsuit. Find a lawyer who works with franchisees to determine your best course of action.
Can I sell the business at a discounted price?
Cut your losses. A lot of people cling to their businesses because they put $500,000 in to them so they want $500,000 back. Get over it. Getting $250,000 is better than nothing. If you play your cards wrong, nothing could be what you get.
How much debt do I owe and can any of it be relieved through negotiations?
At the end of the day, the IRS, the landlord, the bank and the franchisor prefer less money to no money. Perhaps something can be worked out that will allow you to avoid bankruptcy.
Do not blindly trust your franchisor to look out for your best interest
A common mistake that franchisees make is believing the franchisor always has their best interest at heart. They are out to make money for themselves first. In a perfect world, they make money and you make money. The time they truly care is when they stop making money from you. It's not to say, there aren't some great, honest people working for franchises, but when things are going wrong in a bad franchise, they'll cover their own butts first.
Dealing with a failing business is an emotionally gut-wrenching situation. When people you thought you could trust have wronged you, it makes it doubly gut wrenching. The key is to not give in to your emotional side. Stay calm and rational. You need to consider how the outcome will affect your future. We all do things we regret, it's how we handle the situation after the fact that counts.
Additional Resource: Here's a good article about doing your research up front before investing in a franchise. http://guides.wsj.com/small-business/franchising/how-to-avoid-franchise-pitfalls/
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