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One of the things I hear over and over from distressed franchisees is that they purchased a franchise because it was a “proven business model.” Now, I don’t blame most franchisees for this thought process as they head into their franchise business purchase.  The franchise industry has done a remarkable job of marketing itself where people are preconceived to believe franchises are proven business models. Second, some franchises have been in business for a long time which naturally leads someone to believe it is a proven business model. After all, a franchise would not be in business for a long time if it were not proven, right?
Please keep in mind
All franchisors are not created equal. There’s no guarantee that the franchisor has developed a successful business model or is able to sustain that business model into the future. In fact, many franchise business models are not successful at all. The truth is many franchises out on the market may have no real system, no brand recognition, no marketing plan or perhaps even little to no business experience with the franchise owners.The issue and the problem with suing a franchisor for failure to have a “proven business model” lies within the franchise disclosure document (FDD) and the franchise agreement. The franchise agreement will contain a number of disclaimers that you must overcome or work around should you decide to pursue litigation against a franchisor. These agreements also are written in a manner that is very one-sided in favor of the franchisor. And more often than not, the franchisor has undertaken very limited obligations to the franchisee under the franchise agreement.
What to Do
Generally, you will need more than a failure of the business model to be successful in a franchise case. A franchise lawyer will need to review your FDD, your franchise agreement and the FDD disclosure and sales process to determine if a case exists. There also could be options that don’t involve litigation of the dispute. We often find that settlements with franchisors are possible in distressed franchisee cases. The key is to speak with a lawyer well-versed in franchise law to handle your case in order to have success in resolving the dispute.