A thriving franchisor-franchisee relationship can bedrock of business success if only disputes could be avoided or resolved promptly. The last thing any franchising partner would want is an exhausting and costly action to solve a dispute, which could jeopardize the empire you’ve sacrificed to build. Business partnerships are started with goodwill and the best intentions hence everyone loses when disagreements stand in the way of business.
Disputes affect operations in domestic and international franchises alike, resulting in significant financial losses in most cases. So, it’s imperative to include a dispute resolution clause when crafting a franchise. International franchise litigation lawyers can help international franchises, resolve disputes in the absence of a resolution mechanism in franchise agreements. So, how can you avoid disputes in international franchises?
How to Avoid Disputes in International Franchises
The following are some of the ways of avoiding disputes in international franchises:
1. Understanding “Franchising”
Understanding a franchise can sound obvious but the number of franchisors and franchisees entering into franchise relationships without understanding franchising is astounding. For instance, most franchisors confuse franchising with establishing regional branches or subsidiaries. These franchisors falsely believe that they can start a franchise and still retain the overall control of the businesses. Franchisees are independent businesses with separate rights like the mother company.
On the other hand, a potential franchisee might prefer running a satellite unit than managing an independent franchise since they–satellite branches, are easier to operate. However, they must know that satellite units are not franchises. Understanding what a franchise is arguably the first step towards avoiding franchising disputes.
Poor communication and innocently misrepresenting facts when engaging a prospective buyer can cause disputes later because what was portrayed by the franchisor could be different from what’s on the ground–reality. Misrepresentation of facts could severely strain a franchisor-franchisee relationship where financial projections are involved because altered facts could result in “overselling” the franchise. The franchisee will later claim the franchisor misrepresented facts to defraud them, and they could even sue the franchisor.
Performance should align with what was advertised and franchisors should explain to prospective buyers the basis of their financial projections.
Other areas that can be negatively impacted by disclosures or miscommunication include daily operations, ongoing support, training, projected income, among others. It might feel awkward discussing certain issues of the business but it’s better that way than trying to resolve disputes related to such issues later.
3. Involve the Experts
A big percentage of franchise disputes are caused by arrogance. The franchisor or a franchisee might disregard expert advice, particularly legal counsel when signing a franchise contract to save money, which could later haunt them. International franchise litigation lawyers help franchises draft fair and balanced franchise agreements that protect all parties, including the brand and business prospects.
The franchisee should seek independent legal counsel about the proposed franchise agreement and terms of engagement to protect their interests. Financial experts should be consulted when drafting financial projections and when exploring future funding options for the business. Franchisors can also engage professional recruiters to hunt for a suitable candidate–franchisees. Some recruiters analyze the target location and recommend an ideal approach for establishing a franchise. Expert advice can be costly but invaluable in the long term and outweighs short-term costs by far.
4. Due Diligence
Doing due diligence can never be emphasized, particularly when a deal is mouth-watering and hard to ignore. Some franchise disputes occur because one party–mostly the franchisee, failed to do due diligence. A prospective buyer must ensure they have the required resources and the capacity to support the business.
The franchisor can run a pilot scheme to test the viability of the proposed deal if the franchisee is the brainchild of the franchising concept. Rushing to establish the franchise without performing due diligence is attributed to many disputes in international franchises.
The parties involved in a franchise must make a conscious decision whether the business relationship will work before signing a franchise contract. Most franchisors assume that as long as a prospective franchisee has the funds and is passionate. A good franchisee must have basic experience, temperament, and the right technical skills to run a franchise. The franchisee on the other hand should consider whether they’re equal to the task.
The deal is done once the franchise agreement is signed, meaning that disputes arising afterward will be formal disputes and they’ll be resolved according to the franchise agreement. Initial talks can be nullified provided the franchise agreement will not have been signed.
There are many other ways of avoiding disputes in international franchises but the reality is that you can never entirely avoid disputes when working together. Involving international franchise litigation lawyers from the onset is the first step towards avoiding costly litigations for resolving disputes.