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A common misconception about buying a franchise is that franchisors will not negotiate with prospective franchisees. But the truth is, franchisors negotiate!
Once upon a time, the Franchise Disclosure Document (FDD) was called the Uniform Franchise Offering Circular, and the word “uniform” was often used to discourage negotiations. “It’s a ‘uniform offering’,” franchise sales people would explain, “and that means every prospective franchisee gets the same terms.”
Franchisors negotiate when it makes good sense
Well, that’s true, but it’s not the whole truth. A franchisor’s offering circular (now known as the FDD) offered every prospective franchisee the same franchise fee, the same royalty fee, the same start-up benefits, including training and support at no extra cost, for example, but modifications still occurred, and they occur today.
“In more than 30 years of working with franchisors, I’ve never known one that did not negotiate,” said Dr. John P. Hayes, the author of numerous books about franchising, and for more than 25 years the most popular seminar leader at the International Franchise Expo. “If it makes good business sense, franchisors will negotiate.”
Good business sense is also common sense.
“If you’re hoping to buy a major brand, say a McDonald’s or Taco Bell, your opportunities to negotiate will be very slim, though they still occur, especially if you’re a successful food service operator,” explained Dr. Hayes, who teaches The A to Zs of Buying a Franchise at the International Franchise Expo. “However, if you’re buying into a new or even a mid-sized franchise concept, your ability to negotiate depends on what you can offer the franchisor.”
Wanted: Proven Operators
For example: You’ve owned multiple franchise units in the past and you’re a proven operator. You’re the type of prospect every franchisor wants to claim as a franchisee. In fact, the franchisor is wondering, “What’s it going to take to get this prospect to sign our franchise agreement?”
Go ahead, tell them what it’s going to take!
Wanted: The Very First Franchisee
Another example: You’re considering buying a franchise that has no or only a few franchise locations. In this case, the franchisor may need you more than you need the franchisor. You can be sure the franchisor is going to negotiate, especially if you’ve got all the business attributes that the franchisor seeks.
“Negotiations occur in franchise acquisitions every day,” continued Dr. Hayes, author of the Amazon bestseller, Buy “Hot” Franchises Without Getting Burned. “But successful negotiations do not occur without justifications. Even then, some terms will not be negotiated because the franchisor wants to keep the terms uniform among the franchisees. This saves lots of explanations and also reduces the likelihood of lawsuits.”
If you can demonstrate value for the franchisor, you may be able to negotiate. “Say you’re converting your 10-year established business to a franchise brand and you’ll bring 1,000 new customers to the franchisor,” explained Dr. Hayes. “That’s worth something! Or let’s say you’re the first franchisee to join the network. You may be able to ask for delayed royalties for six months, or additional training and coaching at no cost.”
Bottom line: Don’t let the idea that franchisors do not negotiate keep you from inquiring about buying a franchise. “In spite of federal and state laws, and a restrictive FDD, franchisors have the capacity to be creative, especially when they see a prospect that they want to claim as a franchisee,” concluded Dr. Hayes.
