Sbi Magazine

In the World of franchising every thing starts out like a dream, just like in interpersonal relationships, however as things go on the only constant of change often shows us it takes a lot of work to keep the spark going. When the potential eventuality occurs when a non-performing franchisee fails to comply with the franchise agreement they often will be put into default by the franchisor.

Often and in some states they have a chance to cure default, but if they do not the franchisor has to determine if such a violation is a call for termination. If so, often no one wins and it creates a lot of work for both in the relationship as they sever ties. It therefore makes sense to outline the duties required prior to such an event. In my franchise company I included this clause to help ease the process in such a case, as it is an emotional issue and it is extremely stressful for both franchisor and franchisee;

6.2 Rights and Duties of Parties Upon Expiration or Termination

Upon termination or expiration of this Agreement for any reason, all rights of the Franchisee under this Agreement will immediately terminate, but Franchisee will have the following duties, which will survive termination or expiration of this Agreement:

(a) Franchisee must promptly pay Franchisor all sums owing under the terms of this Agreement, including all damages, costs and expenses (including reasonable attorneys’ fees) incurred by Franchisor by reason of default on the part of Franchisee, whether or not the expenses occur before or after the termination or expiration of this Agreement.

(b) Franchisee must immediately cease to operate their Franchised Business and must not
thereafter represent to the public, advertise or hold themselves as a Franchisee or former
Franchisee of The Car Wash Guys or of the Franchisor.

(c) Franchisee must immediately and permanently cease to use, in any manner whatsoever, any confidential methods, procedures and techniques associated with the System; the proprietary mark THE CAR WASH GUYS and all other proprietary marks and distinctive forms, slogans, signs, promotional material, symbols and devices associated with the System.

(d) Franchisee must take action to cancel any assumed name or equivalent registration, which contains any of the Marks and will furnish Franchisor with satisfactory evidence of cancellation,

(e) Franchisee must ensure at its own expense that all mention of the Marks in connection with Franchisee is removed at the earliest possible time from all telephone and other directories, directory assistance records, building directories, signboards, internet sites, membership rosters and every other place and publication.

(f) Franchisee will cease and desist from all use of the Marks and must deliver to Franchisor, or its duly authorized representative, all materials and papers upon which the Marks appear. Franchisee will not, at any time, adopt or use any word or mark which is similar to or confusing with the Marks.

(g) Franchisee must immediately deliver to Franchisor all manuals, including, but not limited to, our Confidential Operations Manual. Franchisee must also deliver to Franchisor all documents and records that are reasonably necessary or important to the continuation of the Franchised Business including corporate newsletters and information packets and proprietary computer software and programs containing customer, industry and other data bases, lists, fax, sales, advertising and marketing material. Franchisee must also deliver any proprietary copyrighted customized accounting or other software which may or may not have been loaned to Franchisee. All fax, sales, advertising and marketing materials including data bases, artwork, sales letters, lists, etc. loaded on these programs or loaded on another computer program or in printed form are also owned by Franchisor and must be returned to Franchisor. This includes documents, records, files, instructions, correspondence, all materials related to operating your franchised business, including agreements, disclosure statements, and any and all other materials relating to the operation of your franchised business in your possession, and all copies thereof (all of which Franchisee acknowledge as our property and Franchisee must return to Franchisor). Franchisee will retain no copy or record of the foregoing, except your copy of the Franchise

Offering Circular, Franchise Agreement, related agreements and of any correspondence between the parties and any other documents which Franchisee need for compliance with any provision of law or arbitration proceedings or for your tax records.

(h) If Franchisee continues to operate or subsequently begin to operate any other business, Franchisee agrees not to use any reproduction, counterfeit, copy or colorable imitation of the Marks, either in connection with that other business or the promotion of it, which is likely to cause confusion, mistake or deception, or which is likely to dilute our rights in and to the Marks. If Franchisee does use the Marks wrongfully, Franchisee will pay Franchisor a minimum of $20.00 per day and together with all related damages and accept a cease and desist order. Further, Franchisee agrees not to use any designation of origin or description or representation, which falsely suggests or represents an association or connection with Franchisor.

(i) If Franchisor so elects, Franchisee must sell to Franchisor, at Franchisor’s cost, all products, supplies and equipment which bear the Marks.

(j) If Franchisee is terminated without transfer, Franchisee will deliver their trucks, trailers or other units to Franchisor’s designated equipment development and installation site for retrofitting, repair (engine work, body work, paint, logos) and upgrading to current specifications in preparation for sale to a new or existing Franchisee if the vehicles with gasoline engines have under 50,000 miles or the vehicles with diesel engines have under 80,000 miles or for sale only to an existing Franchisee if the vehicles have over these mileage limits. The costs to retrofit, repair and upgrade will be due and payable by Franchisee. The participating vendor team partner will receive a five percent (5%) commission based upon the sales price of each truck/unit due and payable upon the sale of the unit(s) to cover their expenses for their time, telephone calls, credit application inquiries and processing the sale. If Franchisee fail to deliver the truck/unit(s) to the installation site within fifteen (15) days after your termination, Franchisee agree to pay the towing, transport, driver delivery time and other expenses incurred when another party delivers the truck/unit(s) to the installation site. Franchisee further agree to assume full liability for the units until sold. Franchisee can determine the asking and final selling price for each of their truck/unit(s).

(k) Franchisee must comply with the provisions of this Franchise Agreement described under the heading “Covenants Not to Compete”. See Section 3.20 of this Franchise Agreement.

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When franchise outlets, franchisees or team member relationships do not work out, it is important to cut ties correctly and insure that the there is not unnecessary litigation or any question as to what must take place; therefore it must be clearly defined in the franchise agreement. As a franchisor I learned this the hard way a few times and thus you too need to be cognizant of these issues. You would be advised to contact a franchise attorney and pay special attention to these issues.

In modern day franchising especially with low-cost, easy-in franchise business models we see a trend of people buying into a franchise and then deciding to do something else. We see this in regular corporate employment too as the average employee changes jobs every 3.2 years. So, I hope you will consider this in 2006.

While opening a franchise is often a great way to reduce risks and generate profits based on an existing business model that offers cooperative management, for companies that have realized success on a smaller scale, franchising is also a great way to expand your existing business and generate greater revenues while minimizing the overhead spent on facilities, personnel, and training. In addition, franchising is also a great way to take your business to a global level, by opening up franchises in other countries.

Many of today’s top US franchise companies, like McDonald’s or Dunkin’ Donuts, now have several foreign franchises as well. However, franchising is not always just for the largest companies. A number of smaller companies have also opened a number of franchises in other countries as well that have been successful and profitable. An example of this is some of the smaller US chocolate and candy companies which now operate in parts of the Middle East where chocolate is considered a delectable luxury, much like caviar in the US.

One of the biggest challenges of franchising in foreign countries, however, is being able to adapt your product and operations to the various customs and lifestyles of various cultures. Notable US franchisor KFC had eleven retail outlets in Hong Kong fail within two years, mostly because the Chinese found the food to be too greasy and considered eating with your hands to be undesirable. A number of US pizza chains have also discovered a bit of a challenge globally, as t has been discovered that people in different regions prefer different kinds of pizza toppings.

McDonald’s remains the largest global franchisor worldwide, and can teach many franchisors, both small and large, a great deal about adapting to various countries in order to make your franchises a success. Both domestically and internationally, McDonald’s has been met with a great deal of challenges, and has proven that the ability to evolve with changing demands and respond to problems rapidly and effectively are the keys to success in any business.

In the US, the company has been faced with lawsuits over hot coffee that did not have appropriate warnings and also claims that the company was making people obese. As a result, the company puts a great deal of effort into product labeling and is making strides in offering healthier menu choices. Overseas, the company has also been faced with the threat of E. Coli contamination and even a mad cow disease outbreak in its Asian stores, which serve as examples of the difficulties that any franchisor must be prepared to deal with a number of various situations readily and effectively.

Few franchises fail but it does happen from time to time. Mostly, failures in franchising can be avoided if a franchisee understands the process and works with the system. Franchisees have plenty of reasons to be optimistic about their chances of success in franchising.

More than 75% of franchises are still thriving after five years. The statistics for independent start-up businesses show the reverse statistics. At least three-quarters of start-ups fail within the first five years.

Franchisees are in a favorable position for success. They have a proven system behind them as well as franchisor support. Yet some franchisees make drastic mistakes that can lead to failure.

Why a Franchise Might Fail

. Insufficient Working Capital

The required amount (and even more for unexpected circumstances) of funding is a must for franchising success. Actually, insufficient working capital is the main reason for failure in franchising. Sometimes franchisees underestimate the cost at different stages of their business such as the expense of start-up or necessary funding to reach the ‘break even’ point.

. Financial Mess

Even if franchisees have enough funding, they must be able to manage their finances. A financial mess spells disaster for a franchise. Bad financial management will turn out to be a franchisee’s worst nightmare.

Franchisees have to know the score. They must have the complete financial picture. Franchisees need to see where they have been, where they are, and where they are planning to go with their business.

. Bad Operational Management

Poor operational management has been proven to be at the root of more than one franchise failure. Keep in mind, however, that franchising offers definite advantages. Franchisees have methodologies and processes in place. Most likely, the franchise will have a selling guide for franchisees. If a franchise revolves around purchasing, the franchisor should have pricing models and purchasing contracts.

Basically, a franchisee has a ton of resources to draw on for their business. Yet a franchisee has to like management or be in a position to get a qualified person to handle operational management. Poor practices will drag down a business.

. Location

The location of a franchise is a huge factor in the success or failure of a business. If a franchisee wants to maximize their chance of success, they must set up in the best location for that business. The demographics must work for the enterprise. One positive feature of franchising is that the franchisor can help with this decision.

. Poor Planning

Poor planning or even worse – no planning – is a surefire path to franchise failure. Many individuals are not efficient planners but a franchisor could offer support in this area. Even business plan templates can help franchisees to establish a plan for success.

. Out-of-control Growth

Franchisees must maintain an overall balance and that approach applies to growth. All business must move forward but they need to grow in a manageable manner. Rapid growth can put too much pressure on a business. Growth and credit might get in a collision course and cash flow could become a serious issue.