Franchising can be an appealing business model for aspiring entrepreneurs. This path offers the lucrative opportunity to run a business with the support of an established brand.
However, potential franchisees need to be aware of the potential pitfalls they might encounter. In particular, there are three common ways franchisors might try to maliciously take advantage of franchisees.
Unfair fee structures
Franchise agreements often come with a slew of fees that franchisees must pay to the franchisor. While some fees are reasonable and necessary for the operation of the franchise system, others may be excessive or unjustified. Franchisors might impose high initial franchise fees, ongoing royalties, marketing fees and additional charges for services or products. These fees can significantly eat into the franchisee’s profits.
Lack of support and guidance
One of the primary attractions of franchising is the promise of receiving support and guidance from the franchisor. However, some franchisors fail to deliver on this promise, leaving franchisees to fend for themselves. Inadequate training programs and insufficient marketing support can leave franchisees feeling overwhelmed and ill-equipped. Without proper guidance, franchisees may struggle to meet the franchisor’s expectations and face difficulties in growing their businesses.
Restrictive terms and conditions
Franchise agreements often contain numerous terms and conditions that limit the franchisee’s autonomy and flexibility. Franchisors may impose strict rules regarding pricing, suppliers and even the appearance of the franchise location. These restrictions can hinder the franchisee’s ability to make decisions that are in the best interest of their business. Additionally, franchisors may reserve the right to make unilateral changes to the terms of the agreement, further limiting the franchisee’s control over their business.
While franchising can offer a pathway to entrepreneurship, potential franchisees must approach it with caution and awareness. Contact Zarco Einhorn Salkowski, P.A. today for a free consultation regarding your franchise law concerns.
