When signing a franchise agreement, do you need a business contingency plan?

When signing on the dotted line for a franchise, yes, a business contingency plan should be in place and the plan should begin with the end in sight.

Huh? What? Really?

Yes, the business contingency plan must include an exit strategy. It’s actually the first place to start as it addresses the “what if” questions that must be answered before a problem occurs. It always helps to be prepared. It also helps for all parties to be aware.

The exit strategy must include a plan for predetermined events like retirement. As well, it must be in place in case of unforeseen events that typically occur as a result of poor sales, and in some cases as a result of employee theft, mismanagement, poor health, etc. and the repercussions that come from these instances that often blindside all parties.

Unfortunately, it’s human nature to only look at the positives of a relationship, personal or business. How many couples avoid the issue of prenuptial agreements because they don’t want to start off on the wrong foot? Or because it’s just too difficult to have the conversation? Maybe the sentiment is that it will jinx their relationship or provide an out to the party not willing to work at the relationship? The same is certainly true in the franchise relationship.

However, in both cases it is prudent to look at the potential downside and have as many of the potential scenarios outlined ahead of time. If nothing else, at least it keeps everyone focused on the potential consequences of failure – something that may provide them even more incentive to succeed. After all, it is easier to fail than it is to succeed, mostly because the momentum going downhill is quicker. As such, it’s easier for things to get out of control, and fast if a plan is not in place.

In most cases of franchisee failure, there’s no way it can possibly be a surprise to anyone. Certainly, it shouldn’t be a surprise. Trends become evident and it would take a tremendous amount of shear stupidity and ignorance for anyone to believe a franchise location closing is a surprise. I guess we could chalk it up to the “head in the sand” scenario? Possibly on both sides of the relationship.

My recommendation to franchisees and franchisors alike is to have a business plan in place at the beginning, complete with an exit strategy. It should be discussed between all parties to the franchise agreement. All must understand mutual obligations upon termination. Communicate, communicate and communicate must be the case throughout the relationship from franchise disclosure to the closing of the franchise location – and all points in between!

Notice the one thing missing is “dis.” To use the street slang of “dis”, make sure you don’t dis communications, don’t dis obligations, and don’t dis responsibility. For anyone that doesn’t know what dis means, it’s most easily defined as “ignoring and/or disrespecting.” Again, this is paramount on both sides of the relationship.

My advice to franchisees, don’t get all starry-eyed at your franchisor like you’re in love. Realize it’s a business relationship and make sure all parties to the agreement, including yourself, live up to their obligations. To franchisors, be sure to do your part, as proactively as possible.

Sure it’s easy to refer to the franchise relationship as one of family but there is such a thing referred to as dysfunctional families, right. Shit happens, right? And when least expected!

Further, to all parties involved in the relationship, when trouble is on the horizon, do not, I repeat, do not put your respective heads in the sand. Keep in mind that when heads are in the sand, your most vulnerable ass-ets are exposed to the entire world leaving everyone at a distinct disadvantage. Especially, as the rumor mill starts to heat up.

Below is a link to a great article about business contingency plans:

Business Contingency Plan – Do You Have One?

Have a great day. Make it happen. Make it count!