we are actually in hurricane force winds today
so I have to apologize ahead of time/ I thought what better time to make a video but there
may be some background noise and squeaking. An overused cliche in franchising is that
you are in business for yourself, but not by yourself. But are you really in business for yourself
and what do you own, if anything. Many franchisees found out the hard way that
franchisors usually hold all the cards and those smiles and handshakes you got before
you signed the contract might not last forever. We often talk about life cycles of franchises
here at Franchise City and how the personality and culture of a franchise changes as it grows. Emerging brands typically have intimate communications
between the founders and franchisees and are more likely to work in tandem alongside you
towards mutual success. As franchise systems grow however they are
often purchased by huge conglomerates. At that point in time the priorities change
in favor of the shareholders. This can have a detrimental impact on existing
franchisees. Always keep in mind the franchise culture
you step into today may not be the same 5 or 10 years in the future. But do you actually own anything after you
pay the franchise fee? Can you sell your business down the road for
a profit. Well in certain circumstances yes, but not
always. And franchisors will generally maintain some
level of control over the process. This makes sense because if you sell your
business for a ridiculously high price, the new franchisee will find themselves hard pressed
to be profitable under all that debt. Or if you sell to someone not qualified to
run the business that could create issues for the franchisor. So at minimum most franchises will maintain
some level of control over your sale. You will want to check your FDD and agreement
to determine exactly what is the case in your particular situation. One of our more popular videos covers the
Chick-Fil-A franchise. One disadvantage we note in their agreement
is you never actually own anything. At the end of the term there is no equity
available except for Chick-Fil-A corporate, who retains ownership. So arguably in that contract you are almost
a glorified manager for the term. But at least with Chick-Fil-A you know what
you are getting into beforehand. But what about other franchises like McDonald’s? Surely we can sell our franchise at the end
of the term? Maybe or maybe not. Most franchise buyers don’t give this much
thought but most franchise agreements provide a finite term, say 5 or 10 years, followed
by one renewal provided certain conditions are met. But after the renewal what happens? Well unless you have an evergreen contract
that outlines automatic renewals as long as these conditions are being met, it is likely
the franchisor has full authority to make the call whether to renew your contract or
not. No scenario proves that better than the experience
of Kathryn Slater-Carter and her husband Ed. Since 1983 they had operated 2 McDonald’s
locations in Daly City California. In 2011 McDonald’s corporate contacted them
stating they would not be renewing the lease on one location when it came due in 2014,
but the company would be continuing the lease …..which would allow them to sell the franchise
to another franchisee. 2014 came and McDonald’s decided not to renew
the lease, which is their prerogative. Slater-Carter had been vocal against certain
McDonald’s policies so whether this played into the decision we don’t know. But after 30 years of operating the franchise
location now they would end up with nothing. Or close to nothing as they were only able
to sell the restaurant equipment that they had purchased at market value which is practically
nothing. And according to franchise agreement letter
of the law franchisors have the final say in what happens at the end of the term. Now some states including Iowa and Rhode Island
have enacted some levels of protection regarding franchisees equity in their franchised businesses. Other states have tried to introduce similar
measures but those bills have been shot down. Now Slater-Carter’s own home state of California
tried to pass a bill called SB-610 that would have protected franchisees from major corporations
just taking their businesses away in such a fashion. In this bill unless franchisees had committed
a “substantial and material breach” the franchisor would not have the power to shut them down. Now the bill actually passed state assembly
which prompted the IFA, (international franchising association) to run commercials on how this
bill would hurt the economy. The SEIU which is the Service Employees International
Union, countered with commercials this would be good for the economy. In late August of that year the state senate
approved the bill. Enter this guy, Gov. Jerry Brown who had the
power to, and waited until the very last day before the bill would become law, to veto
the bill and that was the end of it. No added protection for franchisees Now some of you might have seen Governor Brown
in the news recently, being the politician who vetoed bill SB-1463 which was a measure
aimed at reducing California wildfires from overhead electrical lines. Wildfires as we have seen in the news recently
have a terrible impact on the state of California and many people have been affected. Bill SB 1463 was unanimously voted for without
a single person against it 75-0 in the legislature and 39-0 in the senate. so Hey Jerry we can help slow wildfires and
absolutely everyone is in agreement what do you say? Old Jerry didn’t like that bill either so
he vetoed it. That decision came back to haunt him as widfires
now are burning uncontrollably in his state. But I digress. So when you look at it do you actually own
anything in a franchise relationship? technically, unless stated otherwise in your
agreement, no. In many circumstances you are renting the
ability to use the franchisors brand and processes for a set period of time. Look at the potential profit you could make
in the finite term and ask if all that work is worth it in the event you are unable, for
any reason, to renew. Always have your lawyer clarify with you what
happens not just during the agreement term but after the agreement ends. And what your rights include. As it currently stands in most agreements
the franchisor holds all the power. And if you think I’ll just leave and open
your own store – most franchise agreements will bind you to a non compete clause preventing
you from operating similar ventures for a number of months or years. But that’s a topic for another video Dont forget to like and subscribe and comments
help us spread the word. Thanks for watching.