Buying a franchise might let you avoid many challenges of starting your own business from scratch. For instance, because franchises usually already have an established market, you will likely have less difficulty introducing your brand or choosing your initial products. Such advantages can help you save money, especially in the first few months of your business.
However, running a franchise business also means you are not entirely your own boss. The franchisor can make decisions that may adversely impact your livelihood. For example, they might decide to terminate your franchise or refuse to renew once its term ends, and you could lose your business.
The termination clause
Franchise agreements usually include a termination clause, which indicates the different actions and reasons that could lead to the termination or non-renewal of your franchise. In some termination clauses, the franchisor can end the franchise if the franchisee:
- Goes bankrupt
- Loses their lease
- Does not pay royalties
- Goes to prison
- Does not follow the terms of the agreement
Franchisees can usually challenge a franchisor’s decision to terminate or not renew the franchise, especially if the reason behind the decision is not in the termination clause. In such disputes, franchisors generally must be able to demonstrate that they have good cause to end their business relationship with the franchisee.
Franchise laws are constantly changing and might have gray areas that can affect your business in many ways. Being familiar with these laws and staying up to date with any changes can help you understand your rights as a franchisee and effectively protect your livelihood.