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When the going gets tough: Can you quit a franchise?

by on General

The last year has been challenging for all types of business owners. Although franchisees have support from a larger organization, it can be troubling when there are no customers coming in the door.

While many businesses are starting to pick up as the nation recovers from the pandemic, the future for your franchise may still seem bleak. Some owners remain struggling with getting customers. In contrast, others have shifted to having difficulty finding enough staff to operate effectively.

Here’s what you should know about the commitment that comes with your franchise agreement.

In it for the long haul

When someone invests in a franchise opportunity they typically expect to succeed. Whether you believe in the brand, your ability, your market or some combination of those, you started with the belief that you would succeed.

Franchise contracts are built on the optimism you have when you decide to invest. Typically there is a personal guaranty that an individual must give to the franchisor when he or she signs the franchise agreement as a separate legal entity. This personal guaranty means that you (and your spouse, if you are married) are personally liable for all ongoing financial and other types of obligations.  This makes it tougher to just close the doors if things are not going well for the business.  Often, the contract is for a set time, and once you agree to it, there is little to no room for change.

In most cases, once you are in a franchise agreement, you will need to see it through or negotiate some amount of money or terms to terminate the agreement and all of the franchisee’s and guarantor’s obligations.

A franchisee in distress

A business owner that is not a franchise can close the doors at any time and the only issue is if there is a lease. Dealing with the landlord and extricating yourself as tenant and guarantor from the lease is usually the biggest issue. Unfortunately, this issue also exists with a franchisee who wants to close, but there is the added issue of terminating the franchise agreement as discussed above.

If you are concerned about the future of your franchise, it is essential to utilize the resources that come with your agreement. While you may not be able to terminate the contract early, the franchisor may have support or resources to help you with your business.

Qualified help

Franchise agreements are often quite one-sided, with little wiggle room. It is essential to consult with a knowledgeable professional with experience in franchise law prior to signing a franchise agreement.