This article was featured in the January issue of Franchise Dictionary Magazine.

Legal Audit for Franchises

Between my partners and I, we have literally worked with thousands of franchise brands over the last few decades. Many have become household names, while many more have vanished. What separates and propels a select few to the winner’s circle with most never getting any traction or getting derailed after a fast start?

Is your brand, or the brand you are considering joining, on the journey to greatness or off course?

Unit Economics

RIGHT TRACK: The majority of franchisees in the system are making money. The gross margins are strong even when factoring in the cost of being part of a franchise system.

WRONG TRACK: If franchisees are struggling to pay their bills and generally not making money the system could be doomed. If the basic business model doesn’t work the system will not succeed unless the franchisor is willing to make serious course adjustments.

Franchise Relations

RIGHT TRACK: The franchisees are happy with the leadership and direction of the brand. When asked, most franchisees say the franchisor supports them and meets or exceeds their expectations.

WRONG TRACK: The franchisees feel it is an us against them system. There is unreasonable litigation in their FDD that shows the franchisor is inflexible and dictatorial.

Branding & Positioning

RIGHT TRACK: The franchisor is or strives to be a leader in their space. The customers rave about the experience and they are a must have purchase that can stand the test of time.

WRONG TRACK: They are a copycat brand without any differentiator or real position in the marketplace. If the franchisor doesn’t make the case of value to the brand customers, then it is even harder to make that case to their franchisees.

Growth

RIGHT TRACK: The franchise system is growing at a sustainable rate. New locations are opening and tend to stay open under the original owner.

WRONG TRACK: Growing too fast is just as bad, maybe even worse, than no growth or a shrinking system. Is the franchisor awarding franchises or selling them?

To see all of Tom’s featured articles on The Franchise Dictionary Magazine, visit this page.