Research shows that there are five major causes of franchise conflict and that some conflicts are not easy to avoid. The research mainly focused on franchise conflicts from the point of view of franchisors and franchisees.
Awareness that conflicts are part and parcel of any business relationship is the first step toward minimizing and avoiding conflicts. However, disagreements will always crop up because no two people think alike. That said, you’ll need a franchise dispute resolution attorney to help you when conflicts arise. But what are the causes of conflicts in franchising?
5 Major Causes of Franchise Conflicts
It’s important to minimize or avoid franchise conflicts for both franchisors and franchisees. Franchise conflicts occur from five common sources. This section will help you cultivate a thriving franchisor-franchisee relationship which is an integral aspect of the health of any business. The following are the 5major causes of franchise conflicts.
1. Lack of Due Diligence
Lack of due diligence mostly affects franchisees, but that doesn’t mean franchisors are never in the spotlight for lack of due diligence. Research reveals that some franchisors are equally guilty and should improve. Impacts of failing to perform due diligence can include:
- Bad recruitment franchisee recruitment practices;
- Bad judgment of the ideal business model to specialize in;
- Insufficient resources to support new outlets;
- unrealistic expectations and demands, either by the franchisor or franchisee, and more.
Lack of due diligence on the part of the franchisee results in unrealistic expectations, which in turn creates room for franchise conflict.
2. Third Parties Recruitment
Poor recruitment practices can contribute to conflict and increased dissatisfaction. Not everyone is cut out for franchising, meaning you must be careful when looking for prospects to invest in your business.
Using third parties who are not franchisees is considered short-sighted by experts because it doesn’t promote the sustainable growth of a franchise. Additionally, using third parties to run your business, particularly if it’s new, is suicidal and undoubtedly causes conflicts in the short, medium, and long terms.
Communication, or lack of it, is a major cause of conflicts in franchising. The parties within a franchise should constantly communicate and be on the same at all times. Good communication does not only involve talking but involving your business partner in the decision-making process to build franchisee efficacy and minimize conflict.
4. Market Conditions
The condition of the market can also be a source of franchise conflicts, such as franchisee dissatisfaction. Research shows that market conditions, such as increased competition, are mostly withheld from prospects, and they only find out when the deal is already signed. Prospective franchisees or investors will likely consider withholding crucial information, such as market competition information, as a betrayal. That said, conflicts start arising.
5. Unmet Expectations
Economic and personal demands placed on a franchisee may cause dissatisfaction and conflict. Franchising can be lucrative and beneficial if approached in the right way. Unfortunately, franchisors often exaggerate the benefits of franchising, causing false hope. False hope can lead to franchisee dissatisfaction and impact their loyalty to the business or franchisor.
How to Avoid Franchise Conflicts
A Franchise agreement helps business partners maintain healthy and mutual franchise relationships. In other words, such agreements facilitate balanced franchised relationships. However, some franchise relationships are bruised because of unresolved disagreements between franchisors and franchisees.
Franchise conflicts should not be resolved through legal action. Rather, franchise conflicts should be resolved at the earliest time possible before things escalate. The following are some of the ways of avoiding franchise disputes.
Choose Your Business Partner Wisely
You will be stuck with your partner (franchisee) until the franchise contract expires or terminates in some other way. In simple terms, you’ll be there for one another for better or worse. So, imagine what will happen if you recruit the wrong franchisee.
You will need your partner for marketing, brand reputation, and support. This means that you just made a bad investment if you can never agree with the franchisee because there’ll be consequences, one way or another. To avoid this problem, ensure you recruit a reliable franchisee who can represent your brand as expected.
Read and Review the Terms of Your Franchise Agreement
The franchise agreement is considered the constitution of franchised businesses. You will need to refer to the franchise agreement when a conflict arises when dissolving the franchise and in a wide range of issues.
The court will also be guided by the franchise contract when resolving franchise conflicts. In simple terms, a franchise agreement is binding, and that is why you should be careful when signing it.
Many franchise conflicts are caused by poor communication. You may have a valid reason for disagreeing, but failing to communicate may escalate a small misunderstanding into costly litigation and other bad consequences.
Franchise conflicts cannot be entirely avoided, but they can be minimized. A franchise dispute attorney can help you understand how to handle franchise conflicts.