Legal Advice

by Simon Lord

last updated 03/02/2014

No law can save a fool in a hurry

by Simon Lord

last updated 03/02/2014

Some people won’t take advice when they need it - and won't take advice after they've got themselves into trouble, either

The following phone conversation is made up, but I have heard every part of it in different calls over the past 20 years.

Caller: Hello, can ask for some advice, please? I bought a franchise a few months ago and I’m not really happy with it. I was wondering what I could do about it?

SL: What aren’t you happy with?

Caller: Oh, I have to do everything their way and they keep interfering in my business, telling me what to do and checking up on me. It takes up so much time… I can do things much quicker my own way.

SL: Well, they probably need to know that your customers are getting the same quality that other franchisees are providing – and maybe they need to know what’s going on so they can help you grow your business?

Caller: Nah, I know what I’m doing now, I don’t need that. I’m supposed to be in the franchise for five years but I’m thinking maybe I could leave and get my money back.

SL: Mmm… I doubt it. What does it say in your franchise agreement?

Caller: Oh, I don’t know… should I look at it? I’m sure it’s around somewhere.

SL: Did your lawyer explain how important the agreement is and what’s in it before you bought the franchise?

Caller: Nah, I didn’t use a lawyer, they charge like wounded bulls – I mean, this is a well-known franchise, you know? I thought I could trust them to do the right thing.

SL: Maybe you can trust them to do the right thing, but their definition of the right thing might be different from yours. They might be thinking that you understood what you were getting into before you signed a franchise agreement and went through their training.

Caller: So you don’t think I can get my money back? Even if I pay for the training? Bugger. Ah well, I guess I can always just change the name and stop paying them money every month.

SL: Umm, I doubt it. One of the things you’ll probably find in your agreement is something called a restraint of trade clause. That says that you can’t just leave the franchise and carry on using the franchisor’s training and know-how to run a similar business.

Caller: What? But that’s not fair. I paid for this business, it’s mine!

SL: No it isn’t. What you paid for was the right to operate a business using the experience, trade-marks and know-how of the franchisor for a fixed period. You do not own any of those things, and you probably don’t own your customer database, either. Look, why don’t you go and see your franchisor, explain what it is you’re not happy about and see if you can resolve the issues.

Caller: I’m not talking to them.

SL: Well, at least consult a lawyer who can explain the position to you before you do anything that might blow up on you.

Caller: I thought you’d be more helpful than this. All I want to do is run my business, my way. This franchising stuff is all just a big bloody con!

Who’s To Blame?

The above conversation may be fictional but it’s based on fact, as any franchise specialist will tell you. A recent survey found that almost half of all franchisees in New Zealand feel that they failed to do enough due diligence before purchasing their franchise. The figure is even worse in Australia, where regulation of the franchise sector perhaps encourages people to think that due diligence isn’t necessary.

Of course, a well-developed franchise system would have the systems in place to avoid someone like my caller from becoming a franchisee in the first place. No franchisor wants a franchisee who is unhappy, incompetent and who resists attempts to help, because they take up a lot of resources which could be better spent on business growth. But it is also the franchisee’s responsibility to ensure that they are aware of what they are getting into ­ and it’s not hard. Anyone looking to buy a franchise can find plenty of advice locally, much of it free – Franchise New Zealand has been publishing such advice for 20 years. Specialist franchise bank departments, lawyers and accountants all exist to help people make wise decisions, too.

Yet people still fail to do their homework and then blame franchising, when things don’t turn out as they expect. Who would they blame, I wonder, if they’d set up their own business without all the training, support and systems a franchise offers? I’m sure they’d find someone.

For the rest of his life my fictitious caller will claim he had a bad experience with a franchise and was ripped off – but he wasn’t. He was careless, he cut corners and he didn’t listen. As a Court of Appeal judge once commented, ‘No law will ever save a fool in a hurry.’ The same, sadly, goes for good advice.

This article was first published in NZ Business magazine

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