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Investigating a Franchise's Reputation

If you really want to find out the dirt on the franchise you're interested in, put your ear to the ground and start listening.
June 14, 2004
URL: http://www.entrepreneur.com/article/71136

"About two weeks ago, we got the approval paperwork for a real estate franchise. My partner and I are now finding out the franchise we bought has a bad name around town, and it's hampering our development. We had no idea about this franchise's bad reputation, and also that they had problems in the past in our area. This is looming over everything we try to do. We want out, but we paid a $15,000 franchise fee and we want to get it back. Is this possible? We initially asked to cancel but were talked back into it."

You really have to do your homework before you buy a franchise. Once upon a time, companies didn't franchise their operations until they had dozens of outlets going in different parts of the country, so you knew you were buying a "sure thing." With franchising so popular now, fueled by middle-aged downsized executives looking to buy themselves a job, more and more franchises are being launched before they've had the chance to test and prove their business model. The result is often a lot of unhappy franchisees.

While franchises are required to deliver a Uniform Franchise Offering Circular to prospective franchisees disclosing certain facts about the franchise and its business, they're not required to disclose any information about their reputation. This is something you have to find out for yourself.

Remember Ennico's Rule: When buying a franchise, gossip, hearsay and innuendo are far more important than hard data. Some of the best information you'll learn about a franchise will come from sources who will not want to be quoted.

You should talk to as many franchisees as possible and ask them if they were happy with their decision. In my experience, it's hard for people to hide it when they're really unhappy-be sure to watch their facial expressions and listen to the "music" in their voices as well as what they tell you. You should also ask the franchise for a list of ex-franchisees (the franchise is required by law to disclose this to you), and talk to all of them. You should also visit two or three current franchisees in person and spend the day looking at what actually happens in their business.

But what about a franchise's reputation? There's no excuse for not "Googling" the franchise and finding out what people are saying about it on the Web. The process takes about five minutes. As for local reputation, call your local Better Business Bureau. Visit the nearest library and chat up the librarians when they're not busy-they tend to know a lot that goes on in their community. And if they don't, ask the old men sitting in the magazine section. (In most libraries, there are always old men sitting in the magazine section.)

Of course, it's too late for you to do that now that you've forked over the money. Most franchises won't give you your money back under any circumstances, and this is usually stated very clearly in the franchise agreement. The concept is that the franchise incurred significant expense by training you in the franchised business, as well as an "opportunity cost" by turning away other prospective franchisees once you signed on. In practice, however, many franchises will give you at least some of your money back if you yell and scream loudly enough. This is because they're concerned you'll complain to other franchisees about how unfairly you were treated, and the franchise will want to keep "peace in the family."

Keep in mind, though, that if the franchise does refund your money, you'll most likely have to sign a noncompete agreement saying you will not engage in the same business as the franchise for a number of years. By claiming a refund, you may be locking yourself out of the real estate business entirely. Make sure it's worth the tradeoff.

Given the "hard sell" this franchise apparently gave you, I wouldn't expect them to be very flexible. You have clearly been too gentle in negotiating with these sleazeballs, and you now have an uphill fight ahead of you. If you're not comfortable playing hardball at this point, hire an attorney to act as your "bad cop." A couple of nasty letters threatening litigation should get these guys to the bargaining table.