Top 5 Causes of Franchise Conflict and How They Can Be Avoided

05/08/2018 17:00 | Start a business

Franchise conflict and how to avoid it

Many experts argue that conflict between franchisors and franchisees should be avoided at all costs. In reality, a frictionless, ever-harmonious relationship between a franchisor and franchisor is not only impossible but also undesirable. Conflict can be incredibly useful and often results in positive change. That being said, regular strife, as well as certain negative types of conflict, are not desirable at all. Here, we look at five of the most common causes of damaging conflict and how they can be avoided.

1. Third party involvement

In many cases, conflict between franchisors and franchisees is caused by third parties operating or caught between the two. For instance, some franchises use third-party organisations to identify suitable franchisee candidates and sell the organisation to them. When this happens, mistakes can be made, information can be misrepresented, and the truth can be stretched. In many cases, the third party will have a vested interest in securing the interest of the potential franchisee and will do whatever it takes to ensure that they contact the franchisor - even if it means selling the franchise in a less than ethical manner.

To prevent this type of conflict, franchisors need to try and limit their reliance on third-party organisations as much as possible. If they do want or need, to use third-party organisations, they should be trusted partners that understand the role theyre to play and recognise the fact that franchise information needs to be accurate if the partnership is to flourish.

2. Lack of communication

Another critical reason conflict arises between franchisors and franchisees is a lack of communication. Communication can be a problem in two distinct senses. First, if franchisors don't regularly communicate with franchisees and involve them in decision-making processes, franchisees will quickly begin to feel frustrated, powerless, and overlooked. If this continues, conflict is almost inevitable. Secondly, conflict generally occurs when expectations are not met. This means franchisors need to ensure franchisees have realistic expectations if theyre to avoid conflict. The only way of ensuring this is through close communication.

Conflict caused by a lack of communication can be avoided by putting procedures and processes for the timely sharing of accurate information in place. Franchises need to ensure theres a way for franchisees to influence and affect the decision-making process, receive advice and guidance, and raise issues with superiors. If these communication channels arent left open and accessible, conflict is the likely result.

3. Work/life balance

Many franchisees become disillusioned and dissatisfied with their franchisor when they realise that the excellent work/life balance promised is not going to materialise. Many franchises sell themselves on the basis that theyll allow individuals to be their own boss, better balance the personal and professional, or stop working long days and cut down your hours. In the clear majority of cases, this isnt possible until the franchise is well established, at least three or four years old, and there are relatively few problems to deal with. Contrary to what many people expect, the first few years of franchise ownership can be challenging, with long hours, stress, and little free time being the defining characteristics of this period.

To prevent conflict arising in this way, franchises need to be honest with their franchisees. Rather than selling the franchise by painting an unrealistic picture, franchisors need to be realistic about how much hard work will be required. Likewise, franchisees need to be wary of franchisors that describe the initial stages of franchisee ownership as though they are a walk in the park.

4. Failure to perform due diligence

Due diligence is essential to all successful business ventures. If a franchisee doesnt perform proper due diligence, theyre likely to be entering a franchise contract that wont meet their expectations. They may open themselves up to financial disaster, may be frustrated by the relatively slow growth of the business, or may be entirely unprepared for the franchise experience. Likewise, if the franchisor doesnt do their due diligence, they may end up working with under-performing franchisees, attempting to franchise a business that isn't well-suited to the franchise model or be unable to provide sufficient support to the franchisee.

The simplest way to prevent this type of conflict is to ensure that you carry out thorough due diligence and ensure that any relationship with a new franchisor or franchisee is financially viable. This means considering your new partners business history and making sure that theres nothing dubious about their previous employment.

5. Poor economic performance

Another common cause of conflict is low profits or poor financial performance, particularly if it turns out to be considerably worse than the franchisee was promised. When buying a franchise, many franchisees are told to expect a minimum amount of turnover or profit. Franchisors may also use case studies or examples based on unreasonably high profit margins. This will only cause disappointment when the franchisee doesnt hit their expected targets. However, franchisees also have a responsibility to calculate reasonable financial projections.

To avoid this problem, franchises should ensure that theyre using realistic estimates and not over-selling the potential franchisee earnings. On the other hand, franchisees cant simply believe the figure that the franchisor provides. Research needs to be conducted and calculations made. Potential franchisees should speak with other existing franchisees and ask whether the numbers provided are accurate. When it comes to establishing how well a franchise can be expected to perform, the franchisor has a responsibility to provide reasonable figures, and the franchisee has a responsibility to look into the issue for themselves.

Conclusion
As you can see, most issues arise when theres a lack of communication or the franchisee's expectations are unreasonably inflated. This can be avoided by being honest and open with franchisees, ensuring that you're not over-selling the franchise in a manner that misrepresents the reality of the situation or exaggerating the financial reward associated with becoming a franchisee. However, the franchisee also has a responsibility to ensure that they don't take claims at face value and conduct thorough research into the franchise.

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