If the Franchise Pundit hasn’t given you enough reasons to research your franchisor before buying into the company, here is another one. As a franchisee, you are required to purchase inventory, supplies and other items through the franchisor or one of its listed suppliers. What if the franchisor is slow in delivering the product you need to sell? Well, you are out of luck. You’ll be in legal trouble for breaching the franchise agreement if you buy supplies or products elsewhere.
Moral of the story? Research the franchisor’s management, talk to other franchisees, ask to see the financial results of the franchisor and their credit ratings based on audited financial statements. Demand (or better, ask your lawyer to demand) the franchise agreement include a clause that you can buy necessities from alternative equivalent sources if the franchisor fails to deliver in a certain amount of time. If they refuse, I’d walk.
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Ryan is an attorney and valuation specialist residing in Chicago. He chronicles his thoughts and research on FranchisePundit.com. You may reach him by email ryanknoll@gmail.com or mobile telephone 312-715-8115.
This is an interesting idea, but I doubt that a franchisor would include an addendum to the agreement regarding alternative sources of supply. Usually if a franchisor cannot supply, it is because the franchisor has credit problems. Those credit problems may develope over time: essentially what you want is the right to purchase directly from the approved supplier should the franchisor develope credit problems. There is at least one franchise system in Ontario which could benefit from this provision right now.