There are many good reasons for considering a franchise investment. Maybe you want to fulfill your lifelong dream of owning a business and being your own boss, for example. Franchises provide immediate brand recognition for your enterprise. In addition, franchisors provide you with access to their unique systems and tools that have proven successful in the past—allowing you to avoid the “trial and error” phase of starting an independent business from scratch. Franchisors provide training and operational support, and it is comforting to know that you have somewhere to turn for guidance if and when issues arise.
Some have predicted that franchise sales will steadily increase over the next few years as we emerge from the COVID-19 pandemic—and based on our experience, that seems to be holding true as we approach mid-2022. Depending on the industry, the pandemic has impacted certain franchise systems in unique ways. In addition to the usual considerations, prospective franchisees should contemplate their prospective franchise purchase through a unique, post-pandemic lens. Doing thorough due diligence before signing a franchise agreement can maximize your chances of success. For example, in the COVID context, one should consider:
- How the industry, and franchised brand in particular, was impacted by COVID. If the franchisor was negatively impacted in a financial sense, is it now recovering in the region in which you plan to open your unit?
- What, if any, measures the franchisor took to minimize the financial impact of the pandemic on its brand—i.e., did it reduce staff, cut marketing, close down units, limit training or support, etc.? How did this impact franchisees?
- Whether the franchisor provided immediate support for franchisees when the pandemic hit and ongoing support throughout the lockdowns, including updating its training and support policies and procedures. Did franchisees have the opportunity to speak out on how they were impacted, and provide input to the franchisor?
- Whether franchisor allowed for any financial concessions or fee payment deferrals.
- What, if any, changes the franchisor made to its franchise model and system as a result of the pandemic. Did franchisees have a say in these adjustments? Is the franchisor using this time to re-evaluate its model and implement changes that might be a benefit based on post-pandemic customer preferences?
- The financial data franchisor is disclosing in Item 19 of its FDD. Is comparison data being provided for pre-pandemic performance and data during the pandemic? If the franchisor provides no financial performance representations in its FDD, we advise prospective franchisees to discuss financials with existing franchisees (to the extent possible), to get a sense of their financial results from before, during, and now post-pandemic.
Request a Free Consultation with The Castle Law Firm
If you are considering purchasing a franchise, The Castle Law Firm is here to help you understand your rights and obligations under your franchise agreement and franchise disclosure document (FDD), and evaluate such information through a post-pandemic lens. Attorney Rob Castle has extensive experience assisting franchisees and franchisors alike in achieving their business goals in Illinois, and nationwide. Call us at 312-574-0856 to schedule a free consultation or email the firm today.