Should I Buy a Franchised Outlet From a Soon to Be Terminated Team Member?

Occasionally, franchisors have no choice but to cut a non-compliant franchisee from their system, and to avoid litigation often they give them the option to transfer prior to a drop dead date for termination. Why you ask? Because once the franchisee is terminated or the store closes, it sends shock waves in the community that are detrimental to the franchising corporation's brand name. Also there will be customers who are upset and feel betrayed, in other words "burned territory" and that is something that might be more difficult to overcome than the new buyer might expect.

As a former franchisor this was one of my biggest nightmares. Deciding what to do with a soon to be terminated franchisee; do I let him sell to recoup his investment? Do I terminate him and worry about potential lawsuits draining much needed cash flow? Should I accept the new franchisee at face value and fast track the application and deal just to get rid of a bad apple, and if I do, there is always the thought of the devil you know, versus the devil you don't? It's a big risk management decision, but one that has to made rapidly.

Now then, the new transferee needs to know the truth about what's been going on, and what they are getting into so that the old franchisee doesn't cheat them, lie to them, or mislead them just to get out by the skin of their teeth. However, if the franchisor interferes with the sales process too much, and the deal falls through, that too could be a problem. So, if you are buying a terminated franchisees business, your due diligence should be double. Please consider all this.

Lance_Winslow

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