Buying into a franchise can be an excellent turnkey business opportunity. Depending on the type of company, the franchisee investing in a franchise opportunity gets to partner with an established brand. They can secure training from the business for themselves and their managers. They have access to intellectual property, such as company recipes.
Franchises can be beneficial arrangements that give people an opportunity to become their own bosses. However, franchises are not always successful. Some companies grow too fast and do not have enough demand to keep all of their franchise locations profitable. Other times, the cost of running a franchise can leave the franchisee frustrated and ready to move on to a different opportunity.
Those intending to terminate a franchise agreement are often unsure of what comes next. Franchisees who understand what to expect may feel more confident about ending a franchise agreement.
The contract should outline everyone’s obligations
Franchise agreements are often dozens of pages long and contain a variety of different types of clauses. In some cases, franchisees may commit to operating their new business for a specific period of time. Terminating the agreement before fulfilling that obligation could result in financial penalties or pushback from the franchisor.
Additionally, it is common practice for franchise agreements to include restrictive covenants. The contract may prohibit the franchisee from continuing to rent the same space or operating any substantially similar business in the same area over the next few years.
Non-compete agreements can prevent franchisees from starting a similar business. Non-disclosure agreements integrated into franchise contracts could put them at risk of consequences if they use a company’s trade secrets, such as a recipe, when running a different business in the future.
Written communication is likely necessary
Franchisees who are ready to cancel their franchise arrangements often need to communicate directly with the franchisor about the upcoming change. They may need to reference certain aspects of the contract and explain the decision to end the arrangement. Franchisees frequently need assistance when communicating with franchisors and seeking to protect themselves from contractual violations and financial penalties.
Getting assistance early in the franchise termination process can help people avoid potentially costly oversights and mistakes. The right support can help facilitate a prompt and low-conflict termination of a franchise agreement.