Veterans and Franchising

by Shumaker, Loop & Kendrick, LLP
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This past Veterans Day, franchising continued to extended its warm embrace to veterans. For better and for worse, which is my topic.

For Veterans Day in 2011, the International Franchise Association launched an industry-wide campaign, Operation Enduring Opportunity, to hire as team members and recruit as franchise business owners 75,000 veterans and military spouses, plus 5,000 wounded warriors, by the end of 2014. VetFran now has more than 400 franchise systems that voluntarily offer financial incentives and mentoring to prospective veteran franchisees.   VetFran offers veterans a toolkit that includes a Franchising 101 online course, a finance assessment, a workbook for prospective franchise owners, and partner links.  It also offers a mentor network, where veterans can get advise from experiencd franchise professionals.

Then there are a number of for-profit sites that seek to match veterans with franchisors offering special incentives. And many individual franchisors are specialty-marketing their own incentives to veterans.

Even though much of the outreach is profit-motivated, that’s OK by me. Veterans are coming back looking for work, and the more opportunities they have, the better.

My concern is whether veterans are getting the whole story. Here’s the "on the other hand" that I’d add to any site or educational materials:

  1. Statistically, owning a franchise is not more or less risky than starting your own small business. Here’s a good discussion of the statistics. 
  2. Franchises range from very good to downright lousy. Dig into this by reading Item 19 of the franchise disclosure document carefully (read up on how to do this), and by calling franchisees who are successful and those who have been terminated or are in litigation. Make at least a dozen phone calls. If a franchisee association exists, call the President.
  3. Review other objective indicators, like the SBA list of loan default rates by franchise brand, now easily accessible here on Blue MauMau. Be smart about it. Ask whether the franchisor has changed the concept to address the issue, or whether it may have been related to cyclical issues like the downturn of malls or housing.
  4. If you take advantage of incentives to get into a lousy system, you’ve been duped into buying a lousy franchise. Focus on the franchise quality service first. Then deal with the incentives.
  5. If franchisors are willing to extend themselves to benefit veterans, ask them to extend themselves by not requiring liquidated damages or personal liability in the franchise agreement, and there are a few others to look into.  Franchisees and franchisors have certain incentives that are win-win, and certain that are zero-sum. Learn about these before negotiating an agreement.
  6. Get an attorney who knows franchising. No matter how well read you become, you need a professional to advise you.
  7. Development agreements increase risk and reward. Do not enter into one without exhaustive investigation and preparation, and without a good franchising attorney.
  8. Know franchising and know yourself. Your military training gives you some preparation for franchising. You understand systems, rules, disciplines, and the imperative of execution. But don’t take that too far. Your training also makes you well-suited to be an employee, which also values systems and rules and the imperative of execution, and which doesn’t add the possibility of high risk and reward, nor does it have the contradictory tensions that exist between franchisor and franchisee. While veterans receive similar training, each veteran has different personal goals, values, skills, and tolerance for financial risk.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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