According to the NY Times, the franchisor's terms may be less negotiable with strong franchise companies, especially on items that might dilute the integrity of the brand or create inequalities among franchisees. Some franchisors flatly refuse to budge from the standard template, but some experts disagree.
Peter Birkeland, a small-business consultant in Chicago and author of “Franchising Dreams” believes that in the current economy, franchisees should be emboldened to negotiate on items like franchise fees, larger territories or deals on multiple units. “I would push hard for the bargain,” he said. “A franchisor may put on a stern face and say, ‘Take this deal or we’ll find someone else’ — I wouldn’t believe it before, and I definitely wouldn’t believe it now.”
I agree with Mr. Birkeland, it doesn't hurt to ask for a lower franchise fee or lower royalty payments. If you are buying into a brand new franchise company I strongly suggest you work out lower prices. The worst thing that can happen is they say know.
Read the NY Times article: A Guide to Assessing Franchising Opportunities
I certainly agree that anyone coming to any negotiation should ask for the moon and the stars; however, negotiating the sale of a franchise is not the same as negotiating the sale of a business, as franchise sales are governed by both federal and state franchise laws, as well as the particulars of the FDD and Franchise Agreement.
The ideal franchisee learns as much about franchise laws as possible, in order to be better equipped with the right expectations, and to know how to ask all the right questions.
A franchisor, even if they want to, can’t simply make concessions with regard to fundamental aspects of the FDD such as franchise fees or royalties; were they to do so, it would require an immediate notification and re-filing with all registration states in the U.S., as this negotiation is never kept private, but is rather incorporated permanently into the FDD. These ramifications can be enormous, and refiling documents are costly and time consuming.
In short, potential franchisees should understand that in many respects a franchisor’s hands are tied. It may seem like they’re playing hardball, when in fact they’ve (ideally) already taken the time to craft their offering to be as attractive as possible. If it seems like a terrible deal, walking away is always your best option.
It is best for the franchisees to know all about the franchise documents and thoroughly understand the contents thereof so that any violations or troubles can be addressed immediately. Responsibilities and obligations have to be valued. It is better for negotiations to entail mutual benefit and any change should be positive to the business, franchisees, and franchisors or should be done with consultation.
Certainly have a go at negotiation is all I can say. In these times of uncertain economy many are more risk averse and less likely to look to start up a new business. This makes franchisors recruitment more difficult for them and every lead becomes that much more important. Of course like any business they will have a bottom line but as the adage goes… if you don’t ask.. you don’t get. Nothing to lose by asking at least
Joe C
Franchises UK
Are Franchisors Making Deals Due to the Recession?
Some people believe that when you buy a franchise and read the FDD or Franchise Disclosure Documents, that there is no way the franchisor will negotiate with you. This is absolutely false, especially for smaller franchisors. You must recall that we just came out of a very difficult recession, and during recessions franchise companies usually sell more franchises because so many people are laid off and looking for alternative work situations.
However, this recession was different in that the commercial credit markets were not only tight, they were nonexistent. It is for this reason that franchisors have had a rough go of things, and now that we are coming out of the recession, and commercial credit is expected to start to loosen, franchising companies want to get on the fast moving train to expansion.
Therefore, they are willing to make deals like never before, they are willing to negotiate those franchise agreements, even offer discounts on the franchise fees, or carry back some of the paper themselves. Still, if you want to get a good deal on a franchise, you need to move now or at least before the new year in 2010.
Franchisors are not going to be willing to make deals forever, but right now they have no choice, they need new blood in their franchise system, and during the recession some of their franchisees have failed or gone out of business. They really have no choice and a franchisee buyer holds all the cards at the negotiation table.
Therefore, when someone recently mentioned to me that franchisors never negotiate their franchise agreement, I just laughed. You see, before retirement I ran a franchising company and we sold franchises in 23 states, and I do recall negotiating franchise agreements with more than a third of them. I’m telling you right now, this is a good time to ask for discounts, deals, and negotiate those franchise agreements. Please consider this.