A Franchisee Discovers The Fine Print’s Finer Points

iStock_000026226158SmallFranchising continues to be an attractive career change consideration for many Americans, in part because of proven business plans and methods. Therefore, it is imperative that potential franchisees understand what it takes to be successful within a given chain’s franchising framework.

Just as we happily share our vast point of sale experience and expertise with startup owners in order to help them make the best decisions from the very beginning, we at Sintel Systems are happy to share articles and commentary about the perceptions and reality of the risks involved in a career change into franchising — a major area of our point of sale (POS) expertise.

In many of our blog posts, we’ve touted the importance of establishing a safe and sound point of sale system, along with many other well-tested approaches to being a successful franchisee.

In regard to the latter, if you are one of those who are considering a franchise ownership opportunity, we found a recent post by Stacey Alcorn at Entrepreneur.com that’s most worthy of your time.

Alcorn’s post, “The Dirty Little Secrets Lurking in Your Franchise Contract,” gives details regarding her being forced out of her real estate franchise after 14 years. It was only then that she realized her “lengthy, usually unalterable and very much one-sided” franchise contract had four dirty little secrets:

1. Noncompetition

Most franchise agreements have clauses, which set the tone for what an entrepreneur can do after leaving a franchise business. It answers questions such as:

– If terminated, can you continue to own the business involved without using the franchise name, trademarks and tools?

– If terminated, can the businessperson still work in the same field?

“Talk to a franchise attorney to find out what’s required after leaving a franchise arrangement and how enforceable the noncompetition clause is,” Alcorn writes. “Some states make noncompetition clauses very difficult to enforce, especially in instances when the entrepreneur takes all necessary steps to rebrand so that it’s clear to the public that she is no longer operating a business as part of the franchise.”

2. Automatic renewal terms

When franchise agreements end, the franchisor will send new franchise documents. Alcorn warns not to assume that the contract terms will be the same as before. “Most likely there will be changes made since the original contract,” she writes. “One clause that I was surprised to find in my new franchise contract was for automatic renewal terms.”

Some contract renewal language might stipulate that if the franchisee doesn’t immediately sign the new contract, he or she is automatically agreeing to the new franchise terms simply by continuing to operate.

“I didn’t instantly sign my new franchise agreements because my partner and I had many questions and concerns about changes in the language,” Alcorn writes. “The franchisor argued that we had accepted the new terms simply by continuing to operate our business while we were attempting to have our questions answered.”

3. Multifranchise owners

Alcorn’s business has several offices, each with its own franchise contract that began and ended on different dates.

If one real estate franchise contract ended, Alcorn could not just convert the office involved to an independent office, as the franchise agreement did not allow for owning a company that competes with the franchise brand.

“The effect of such a clause makes it virtually impossible for a multifranchise owner to ever leave the franchise company,” Alcorn writes. “The owner is forever handcuffed to the franchise company by that clause.”

Alcorn believes business owners with multiple franchises should try to have all the agreements end simultaneously in order to have options at the end of the contracts’ term.

4. Competing family

Alcorn’s spouse also owned a real estate company under the same franchise. The couple originally met at a real estate conference, so technically, they owned competing real estate offices ever since they met. “It didn’t bother us,” she writes. “Both of our businesses were very successful.”

And yet, when Alcorn left the franchise company, the franchisor took away her husband’s franchise. Why? There was a clause within the franchise document saying that a person cannot have a relative that competes with the franchise. “In essence the franchisor took away my husband’s franchise and handed it to his business partner,” she laments. Ultimately, he decided to join Alcorn’s independent real estate firm.

Alcorn says, when it comes to franchises, do the homework; don’t be tempted to just sign on the dotted line without thoroughly reviewing and understanding the documents involved. “A great franchise attorney is a sound investment for the future,” she says in closing. “A franchise can be a great way to get into a business, but when the franchisor is no longer an ally, have an exit plan.”

Read Stacey Alcorn’s full Entrepreneur.com post here.

For more insights into the franchising mindset, check out our related posts, Points of Fail — And How to Avoid Them, Asked and Answered: 107 Franchisee Questions for Franchisors, Setting Expectations For Success As A Restaurant Franchisee, Let Your Franchised Business Soar! But First Get Grounded In Franchise Legislation, and Franchise Coach Sees A World Of Opportunities, If You Ask The Right Questions.

Don’t wait until late in the game to plan for your point of sale system. The benefits of establishing an early relationship with your point of sale company are many — not just in demystifying the process and determining the optimal system, but even before you decide on a franchise direction.

Before you make your franchise move, consider calling Sintel Systems for a free phone consultation to help weigh and understand your point of sale options. We serve as a franchise incubator for clients across the retail, restaurant and service industries, forming lasting partnerships with our clients that you simply can’t get from a reseller.

Sintel Systems is the only direct to end user full-service provider of tailored Point of Sale systems across retail, restaurant and service industries, including frozen yogurt shopspizzeriassushi restaurantscafés and retail stores.

As a single source for business solutions, our experienced, knowledgeable team negotiates the complex POS landscape for you to enable you to find the right POS system for your business and budget. Hardware – Software – Support

Questions or Comments: Contact us 855-POS-SALES www.SintelSystems.com

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