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Investigating a Franchise's Reputation
By Cliff Ennico - Entrepreneur.com
"About two weeks ago, we got the approval paperwork for a real estate franchise. My partner
and I are now finding out the franchise we bought has a bad name around town, and it's
hampering our development. We had no idea about this franchise's bad reputation, and also
that they had problems in the past in our area. This is looming over everything we try to do.
We want out, but we paid a $15,000 franchise fee and we want to get it back. Is this possible?
We initially asked to cancel but were talked back into it."
You really have to do your homework before you buy a franchise. Once upon a time,
companies didn't franchise their operations until they had dozens of outlets going in different
parts of the country, so you knew you were buying a "sure thing." With franchising so popular
now, fueled by middle-aged downsized executives looking to buy themselves a job, more and
more franchises are being launched before they've had the chance to test and prove their
business model. The result is often a lot of unhappy franchisees.
While franchises are required to deliver a Uniform Franchise Offering Circular to prospective
franchisees disclosing certain facts about the franchise and its business, they're not required
to disclose any information about their reputation. This is something you have to find out for
yourself.
Remember Ennico's Rule: When buying a franchise, gossip, hearsay and innuendo are
far more important than hard data. Some of the best information you'll learn about a
franchise will come from sources who will not want to be quoted.
You should talk to as many franchisees as possible and ask them if they were happy with their
decision. In my experience, it's hard for people to hide it when they're really unhappy?be sure
to watch their facial expressions and listen to the "music" in their voices as well as what they
tell you. You should also ask the franchise for a list of ex-franchisees (the franchise is
required by law to disclose this to you), and talk to all of them. You should also visit two or
three current franchisees in person and spend the day looking at what actually happens in
their business.
But what about a franchise's reputation? There's no excuse for not "Googling" the franchise
and finding out what people are saying about it on the Web. The process takes about five
minutes. As for local reputation, call your local Better Business Bureau. Visit the nearest
library and chat up the librarians when they're not busy?they tend to know a lot that goes on
in their community. And if they don't, ask the old men sitting in the magazine section. (In
most libraries, there are always old men sitting in the magazine section.)
Of course, it's too late for you to do that now that you've forked over the money. Most
franchises won't give you your money back under any circumstances, and this is usually
stated very clearly in the franchise agreement. The concept is that the franchise incurred
significant expense by training you in the franchised business, as well as an "opportunity cost"
by turning away other prospective franchisees once you signed on. In practice, however,
many franchises will give you at least some of your money back if you yell and scream loudly
enough. This is because they're concerned you'll complain to other franchisees about how
unfairly you were treated, and the franchise will want to keep "peace in the family."
Keep in mind, though, that if the franchise does refund your money, you'll most likely have to
sign a noncompete agreement saying you will not engage in the same business as the franchise
for a number of years. By claiming a refund, you may be locking yourself out of the real estate
business entirely. Make sure it's worth the tradeoff.
Given the "hard sell" this franchise apparently gave you, I wouldn't expect them to be very
flexible. You have clearly been too gentle in negotiating with these sleazeballs, and you now
have an uphill fight ahead of you. If you're not comfortable playing hardball at this point, hire
an attorney to act as your "bad cop." A couple of nasty letters threatening litigation should get
these guys to the bargaining table.
Cliff Ennico is a syndicated columnist, author and host of the PBS TV series MoneyHunt. This
column is no substitute for legal, tax or financial advice, which can be furnished only by a
qualified professional licensed in your state. Copyright 2004 Clifford R. Ennico. Distributed
by Creators Syndicate Inc.
Looking for a good franchise to invest in? Browse through Entrepreneur.com's Franchise
Zone to find the right business for you.
Material copyright © by Entrepreneur.com, Inc. All rights reserved.
By Cliff Ennico - Entrepreneur.com
"About two weeks ago, we got the approval paperwork for a real estate franchise. My partner
and I are now finding out the franchise we bought has a bad name around town, and it's
hampering our development. We had no idea about this franchise's bad reputation, and also
that they had problems in the past in our area. This is looming over everything we try to do.
We want out, but we paid a $15,000 franchise fee and we want to get it back. Is this possible?
We initially asked to cancel but were talked back into it."
You really have to do your homework before you buy a franchise. Once upon a time,
companies didn't franchise their operations until they had dozens of outlets going in different
parts of the country, so you knew you were buying a "sure thing." With franchising so popular
now, fueled by middle-aged downsized executives looking to buy themselves a job, more and
more franchises are being launched before they've had the chance to test and prove their
business model. The result is often a lot of unhappy franchisees.
While franchises are required to deliver a Uniform Franchise Offering Circular to prospective
franchisees disclosing certain facts about the franchise and its business, they're not required
to disclose any information about their reputation. This is something you have to find out for
yourself.
Remember Ennico's Rule: When buying a franchise, gossip, hearsay and innuendo are
far more important than hard data. Some of the best information you'll learn about a
franchise will come from sources who will not want to be quoted.
You should talk to as many franchisees as possible and ask them if they were happy with their
decision. In my experience, it's hard for people to hide it when they're really unhappy?be sure
to watch their facial expressions and listen to the "music" in their voices as well as what they
tell you. You should also ask the franchise for a list of ex-franchisees (the franchise is
required by law to disclose this to you), and talk to all of them. You should also visit two or
three current franchisees in person and spend the day looking at what actually happens in
their business.
But what about a franchise's reputation? There's no excuse for not "Googling" the franchise
and finding out what people are saying about it on the Web. The process takes about five
minutes. As for local reputation, call your local Better Business Bureau. Visit the nearest
library and chat up the librarians when they're not busy?they tend to know a lot that goes on
in their community. And if they don't, ask the old men sitting in the magazine section. (In
most libraries, there are always old men sitting in the magazine section.)
Of course, it's too late for you to do that now that you've forked over the money. Most
franchises won't give you your money back under any circumstances, and this is usually
stated very clearly in the franchise agreement. The concept is that the franchise incurred
significant expense by training you in the franchised business, as well as an "opportunity cost"
by turning away other prospective franchisees once you signed on. In practice, however,
many franchises will give you at least some of your money back if you yell and scream loudly
enough. This is because they're concerned you'll complain to other franchisees about how
unfairly you were treated, and the franchise will want to keep "peace in the family."
Keep in mind, though, that if the franchise does refund your money, you'll most likely have to
sign a noncompete agreement saying you will not engage in the same business as the franchise
for a number of years. By claiming a refund, you may be locking yourself out of the real estate
business entirely. Make sure it's worth the tradeoff.
Given the "hard sell" this franchise apparently gave you, I wouldn't expect them to be very
flexible. You have clearly been too gentle in negotiating with these sleazeballs, and you now
have an uphill fight ahead of you. If you're not comfortable playing hardball at this point, hire
an attorney to act as your "bad cop." A couple of nasty letters threatening litigation should get
these guys to the bargaining table.
Cliff Ennico is a syndicated columnist, author and host of the PBS TV series MoneyHunt. This
column is no substitute for legal, tax or financial advice, which can be furnished only by a
qualified professional licensed in your state. Copyright 2004 Clifford R. Ennico. Distributed
by Creators Syndicate Inc.
Looking for a good franchise to invest in? Browse through Entrepreneur.com's Franchise
Zone to find the right business for you.
Material copyright © by Entrepreneur.com, Inc. All rights reserved.
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