Small Business Failure

Is Your Franchise Company Struggling? Part 2

Written by Jay Shapiro for Gaebler Ventures

Business people who opted to buy franchises may have done so believing they were the safer of many options. But the economic slump had a devastating effect on businesses of all kinds, and this didn't exclude franchises. So how do you know if your franchiser is in ill health?

It can't be stressed enough how important it is for that franchisees to recognize certain alarm signals that indicate problems exist.

Those alarm signals may include:

• Staff cuts. If the franchisor suddenly reduces the number of franchisee staff then be on the alert. There may be money problems you are yet to hear about.
• Reduced activity in the advertising and promotional arena. It is especially worrying if little promotion is put in place for new franchise holders.
• Franchise company fails to respond in a timely manner to communications from its franchise network. Red alert! If the company hasn't resources to answer its phones, it's unlikely to have spare energies or money to put into promoting your little share of the business.
• A slow down of communication in general. Have the general meetings and/or conference calls become thin on the ground?
• Field support staff is not as responsive or helpful as they should be. There may be refusals to or make site visits.
• Getting in touch with Franchisor Senior Management proves difficult. When messages are continually conveyed by subordinates it's time to ask yourself what happened to the main man? Where is he hiding, and why?
• Payments are unreliable. This depends upon what kind of franchise operation it is, but if vendors are being made to wait for payments from their franchiser, there is very likely a financial worry at the root of the problem.

Franchisees begin to get in contact with one another. One of the really revealing signs that a company is in trouble is when franchisees start to seek out the opinions of their fellow vendors.

If any of these alarm signals crop up, the most practical approach is for franchisees to make direct contact with the franchisor and deal with the situation. It is much better to tackle a situation like this head-on. Endless speculation about what is going on is a waste of time and energy.

Of course, there's every possibility that franchisor will try to might light of the situation. For obvious reasons they want to avoid creating panic amongst franchise holders and will naturally try to allay any fears you have.

As a franchise holder you made the decision to trust your future successes on the ability of the franchisor to manage and back up the franchise model.

You can respond to franchise alarm signals in the following ways:

Get in touch with the Franchise Advisory Council (FAC), if one exists, and request a mutual meeting. Most of the larger franchise systems have an FAC in place.

If there is no FAC?

Then a select group made up of the highest achieving franchisees should ask to meet with the franchisor. All franchisees should be mindful to avoid behaving rashly, overreacting or threatening anyone. This select group should aim to collect as much data as is possible regarding the company's performance. Making a structured list of the concerns is a good idea. It is advisable for the group members to ask the franchisor about possible ways they can help to alleviate the problems.

If after these endeavors the situation still deteriorates, then it's probably justifiable for you to seek legal counsel advice. A franchise lawyer can also serve as a mutual contact for both the franchisor and the franchisee.

It's imperative that franchisors are monetarily solid. When they have money issues these will ultimately impact on the franchise holders.

Keep your eye out for alarm signals. If you see these warning signs, take action. If the company's future is at risk, so too is yours.

Jay Shapiro is a freelance writer based in the UK. Jay has a particular interest in the emotive aspects of the entrepreneur's character. "Alongside the nuts and bolts of business, the character of the person is often the ingredient responsible for success."

Share this article

Additional Resources for Entrepreneurs

Lists of Venture Capital and Private Equity Firms

Franchise Opportunities

Contributors

Business Glossary