6 Things to Consider When Getting Out of a Franchise Agreement Want to get out of your franchise agreement? Here are six things to consider
By Clarissa Buch Zilberman Edited by Carl Stoffers
Are you a franchisee who's feeling stuck? Do you want to find a way out of your franchisee agreement? Perhaps the terms and conditions are too restrictive, or maybe the franchise is not performing as well as you had hoped. It's natural to feel frustrated and unsure of how to move forward, whatever the reason may be.
If you find yourself in a franchise agreement that is no longer meeting your needs, it may be time to explore your options for getting out. Here, we're outlining five steps you can take to navigate the process of ending your franchise agreement and moving on to new opportunities.
Whether you're looking to sell your franchise or terminate your agreement early, these steps will help you understand your rights and responsibilities and make informed decisions about your next move.
Related: Is Franchising Right For You? Ask Yourself These 9 Questions to Find Out.
Review your franchise agreement
Your franchise agreement is a legally binding contract between you and the franchisor that governs the terms and conditions of your franchise relationship. While franchise agreements can provide many benefits to franchisees — including access to a recognized brand and established business model — they can also be limiting and restrictive with their fees, metrics and operational standards. This can make it difficult for you, as a franchisee, to operate your business as you see fit.
There may be termination clauses in your franchise agreement, but pay attention to the circumstances under which you can exit. If your agreement includes a buyout or termination fee, be sure to take note of the amount.
Communicate with your franchisor
If you're considering terminating your franchise agreement, it's important to communicate that to your franchisor early and often. Ideally, you may have regularly scheduled meetings with your franchisor to discuss the business.
If not, schedule a meeting with your franchisor to discuss your concerns and explore your options. To present your case, you should provide specific examples of how the franchise agreement is impacting your business negatively.
Some franchisors may be willing to work with you to find a solution that meets both of your needs, as that may save all parties time, money and stress.
Related: Want to Become a Franchisee? Run Through This Checklist First.
Negotiate an exit agreement
If you and your franchisor agree that terminating your franchise agreement is the best option, you'll need to negotiate an exit agreement.
This agreement will outline the terms for how the agreement will conclude, including your financial or non-compete obligations. It's a good idea to consult with an attorney who has franchise law experience to negotiate a fair and reasonable exit.
Consider a breach of contract claim
Did your franchisor violate any terms of your agreement? You may have grounds for a breach of contract claim.
You will likely need to discuss this with an attorney because this type of claim can be complex and time-consuming — but it may be an option if your franchisor has engaged in fraudulent or deceptive practices or if they failed to fulfill their contractual obligations.
Related: Considering franchise ownership? Get started now and take this quiz to find your personalized list of franchises that match your lifestyle, interests and budget.
Explore alternative dispute resolution options
If negotiations with your franchisor are not progressing or are breaking down, you can explore alternative dispute resolution options.
These could include mediation or arbitration, which can be less expensive and tedious than traditional litigation.
Again, it's important to consult with an attorney with franchise law experience to determine whether these options are viable for your situation.
Explore selling your franchise
Selling a franchise can be difficult, as you'll need to find a buyer who is willing to take on the franchise and its associated obligations.
Here are some factors to consider if you're looking to sell your franchise and exit your franchise agreement:
Does the agreement allow it? Some franchise agreements may have specific requirements around selling the franchise, including approval from the franchisor and transfer fees.
Determine the value of your franchise. To determine the value of your franchise, you'll need to consider factors such as the profitability of the business, the value of the brand, and any assets included in the sale. You can work with a business valuation expert to help you determine a fair price for your franchise.
Find a buyer. There are several ways to find potential buyers for your franchise, including advertising the franchise for sale online, reaching out to local business brokers, and leveraging your personal network. You'll want to ensure that any potential buyer is financially qualified to take on the franchise and has the necessary experience and skills to run the business successfully.
Negotiate the terms of the sale. Once you've found a potential buyer, you'll need to negotiate the terms of the sale, including the purchase price, transfer fees, and any other terms outlined in your franchise agreement.
Transfer ownership. Once you've reached an agreement with the buyer, you'll need to work with your franchisor to transfer ownership of the franchise. This may involve completing paperwork, paying transfer fees, and attending training sessions with the new owner to ensure a smooth transition.
Move forward in your journey
Exiting a franchise agreement is not something to take lightly. Before making a decision, you should carefully consider the financial impact of terminating your franchise agreement and weigh all your options.
By reviewing your agreement carefully, having open lines of communication with your franchisor and consulting with an attorney, you can exit your agreement and look forward to other ventures.
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