Desperate Times Means Desperate Franchise Buyers

Early in my career, I encountered a franchise buyer who had made a rash decision that turned sour quickly. The funny thing was that he was intelligent, experienced and had a great deal of corporate knowledge – all the attributes that franchisors desire for their many franchise opportunities. I was intrigued that this experienced and generally deliberate person would make such a bad decision. So what went wrong?

After working with my client for a while (during the “litigation phase” of his franchise relationship), it became apparent: While he was an experienced corporate manager, he had very little practical knowledge about what it took to run his own business. More significantly, he made the decision to purchase just after being terminated from his lifelong, high-level position. He was eager to get back up on the horse and succeed!

What he didn’t realize was that he was not ready to take this step. His corporate career had not prepared him for this transition and, in addition to not having much practical entrepreneurial knowledge, he knew very little about the due diligence process involved in buying a franchise. Finally, he was desperate to get something going and he selected a business in which he had no experience and which did not suit his personality.

Unfortunately, this was not the last time I crossed paths with a "desperate buyer.” As we continue to face tough economic challenges, especially unemployment in the traditional executive ranks, I worry about the desperate franchise buyers because,boy, do they make lousy franchisees. This is not just for their sake but for franchise systems. Do you really want a franchisee that may have the initial funds to invest but is ill-suited to succeed? Franchisee failures are no good for anyone.

So to help me sleep better at night, here are a few tips to help you avoid the fate of my early client:

• First, realistically evaluate your personal skills – what are you best suited for?
• Do not rush. There are many franchise and non-franchise options out there. Take your time and learn how to evaluate franchise systems and offerings.
• Educate yourself. Did I say, “Learn how to evaluate franchise systems and offerings”? Yes! You are smart, you can read, and you can learn. Invest time in understanding how franchising works, what a Franchise Disclosure Document (FDD) is and how to negotiate your best deal.
  
• Franchisors: Take the time to evaluate. Yes, it is a two-sided proposition. What do you do to make sure there is a good match? Are you willing to tell someone with the funds in hand that they may not be the right match? If not, then maybe you are a desperate seller. If desperate buyers make bad risks, then what’s the risk when a desperate buyer and seller get together?

Don’t get me wrong. Not everyone should pursue franchise options that only match their life skills and experience as there are many success stories of folks following their dreams, interests and hobbies. My suggestion here is that you do not need to get back in the saddle so quickly. Wait for the right horse to come along and make sure you check its teeth!

Jim Meaney is a lawyer with Zaino & Humphrey, LPA in Columbus, Ohio who has represented franchisors and franchisees for nearly 30 years. Jim is a co- author of “Starting a Franchise System: Practical Considerations, Planning and Development,” American Bar Association Forum on Franchising, 2010 Annual Forum (October 2010). He is also the author of How to Buy a Franchise.  Visit www.fddlawyer.com or www.ohiofranchiselawyer.com for more information.