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How do you prepare for the renewal or termination of your franchise agreement?

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As a franchisee, you may face the decision to renew or terminate your franchise agreement at some point in your business journey. This can be a complex and stressful process, depending on your relationship with the franchisor, your financial situation, and your future goals. To prepare for this scenario, you need to consider several factors and take some proactive steps. This article will explore some tips to help you navigate the renewal or termination of your franchise agreement.

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1 Review your contract

Review your current franchise agreement and understand its terms and conditions. Look for clauses that specify the duration, renewal options, termination rights, fees, and obligations of both parties. You may also want to consult a lawyer or a franchise consultant to clarify any legal or technical issues. Knowing your contract will help you assess your options and negotiate with the franchisor.

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Michael (Mike) Webster PhD

Franchise Growth Strategist | Co-Producer of Franchise Chat & Franchise Connect | Empowering Brands on LinkedIn
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Actually, most renewals will require that you sign the current agreement. Few, if any, franchise agreements give you evergreen rights to renew the old contract. Further, you want to review the current FA with what your landlord will also offer you as a renewal.

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Kent Craven

Franchise Opportunity Expert | Career Transition Facilitator | SBA Lending Savant
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As Mike Webster points out, most FAs require a renewal with the "then current form of franchise agreement". This gives the 'zor' carte blanche to change the nature of the relationship. In practicality, the 'zor' is constrained by what the marketplace will allow at the time of renewal. The FA must still be 'reasonable' if the zor still hopes to sell new franchises and encourage renewals. I have had clients successfully add language to the effect of "... subject to the economic parameters of the agreement remaining unchanged ..." That is, royalty, ad fund, etc. cannot be increased. Some have even been able to include language like " ... no material adverse changes ...". Get a good franchise attorney before you sign for this and other issues.

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2 Evaluate your performance

Evaluate your performance as a franchisee and the profitability of your franchise unit. You can use various metrics, such as sales, customer satisfaction, quality standards, compliance, and growth potential, to measure your success. Compare your results with other franchisees in the same network and industry benchmarks. Evaluating your performance will help you determine if you are meeting the franchisor's expectations and if you are happy with your returns.

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3 Communicate with the franchisor

Communicate with the franchisor and express your intentions and concerns. Maintain a respectful and professional relationship with the franchisor throughout the process and follow their guidelines and procedures. Be prepared to negotiate the terms and conditions of the renewal or termination, such as fees, obligations, transfer rights, and post-termination restrictions. Communicating with the franchisor will help you avoid disputes and reach a mutually beneficial agreement.

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4 Plan your exit or transition

Plan your exit or transition strategy depending on whether you decide to renew or terminate your franchise agreement. If you renew, you should update your business plan, budget, and goals, and comply with any new requirements or changes imposed by the franchisor. If you terminate, you should settle your accounts, transfer your assets, notify your employees and customers, and comply with any non-compete or non-disclosure agreements. Planning your exit or transition will help you minimize disruptions and risks.

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Kent Craven

Franchise Opportunity Expert | Career Transition Facilitator | SBA Lending Savant
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The IFA reports that a 'typical' franchisee sells their franchise business 8 1/2 years into a 10 year term. Academic research shows the seller gets the best ROI at 8 1/2 years or after 20 years.

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5 Seek professional advice

Seek professional advice from experts who can assist you with the renewal or termination of your franchise agreement. You may need the help of a lawyer, an accountant, a franchise consultant, a broker, or a mentor, depending on your situation and needs. They can provide you with valuable insights, guidance, and support, and help you avoid costly mistakes and legal problems. Seeking professional advice will help you make informed decisions and protect your interests.

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Joe Caruso

Franchise Sales Expert and Franchisor Executive Advisor | Co-Producer of Franchise Chat & Franchise Connect | Empowering Brands on LinkedIn
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Yes there is a distinction here to make between renewals and terminations of franchise agreements. Renewals are triggered by length or term of the franchise agreement and should be coterminous with the lease if it is location based. Terminations are situational and not triggered by a calendar date. For renewals you may need a lawyer to help you with negotiations. With a termination by you or by the franchisor you will need an attorney to help you.

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6 Learn from the experience

Learn from the experience and reflect on what you have gained and lost from being a franchisee. Whether you renew or terminate your franchise agreement, you should acknowledge your achievements and challenges, and appreciate the lessons and skills you have learned. Think about your next steps and goals, and how you can leverage your experience to pursue new opportunities or improve your current situation. Learning from the experience will help you grow as a business owner and a person.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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How do you prepare for the renewal or termination of your franchise agreement?

1

2

3

4

5

6

7

1 Review your contract

2 Evaluate your performance

3 Communicate with the franchisor

4 Plan your exit or transition

5 Seek professional advice

6 Learn from the experience

7 Here’s what else to consider

Franchising

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How do you prepare for the renewal or termination of your franchise agreement?

1

2

3

4

5

6

7

1 Review your contract

2 Evaluate your performance

3 Communicate with the franchisor

4 Plan your exit or transition

5 Seek professional advice

6 Learn from the experience

7 Here’s what else to consider

Franchising

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