Franchisee Abandonment in Hard Economic Times

It may not sound irrational to you, but franchising companies do have a problem with franchisees that abandon their location, skip out of town, and are nowhere to be seen. It happens already with some of the top-rated franchisors in the country. The franchisee gets into trouble with his vendors and can’t pay for the supplies coming in, is late on his rent, fails to pay withholding taxes, and skips out without paying his most recent payroll. You’d be surprised how shared this is, and it happens more often during hard economic times.

Of course, the more expensive the franchise and the more invested then typically the more complex the franchisee, and consequently it is less shared. The lower the cost to get into the franchise, the less there is to lose for a franchisee who just walks away. Perhaps, you shouldn’t be too surprised because nowadays people walk away from their homes when they owe more than they are worth and they are getting behind in payments. Sometimes they hand the keys back to the bank and say; “Hasta La Vista!”

Prior to retirement, I ran a franchising company, and it was in the automotive service sector. Our franchises were mobile operations, and every once in a while we did have a franchisee just disappear. For us, it was a little more serious because they took with them our proprietary equipment, secret operations manuals, and perhaps moved to a different city, changed the sign on the side of the means, and continued their business.

In fact, a associate of times we tracked these folks down, and they made all sorts of excuses to justify their actions, perhaps in an attempt to get us to look the other way and forget about it. Of course, they were using our business form, and operating the business in competition with us. As our company grew bigger and bigger it was harder and harder for these individuals not to be discovered by one of our new franchisees, or existing team members.

In this case they didn’t exactly abandon the business they just stopped paying for it. Often they would owe money to the lending companies, and on their automobile loan, not to mention back royalties. I can ingemination situations where they had sold our proprietary equipment to competitors, and given away our secret operations manuals. But it was equally as bad when they just abandon the franchise, stopped servicing customers, and left burned territory, as we had to go in and deliver those sets they had promised to the customer until we could get a new franchisee in to buy that territory, or get an existing franchisee to expand and cover it in addition as at all event other territory they’d already been granted.

If you are franchisor, and this hasn’t happened to you however, I guarantee you it will sometime in the future. How you manager this is important to your brand name, and the rest of the franchisees in your franchising system will be watching to see how you deal with this issue. Indeed I hope you will please consider all this and think on it.

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