"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.
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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.
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.