These 3+ Reasons Will Motivate Franchisors To Negotiate With You
June 13, 2014 12:54 pm 5 Comments
Not so long ago, the Franchise Disclosure Document (FDD) was called the Uniform Franchise Offering Circular, and the word “uniform” was often used by franchisors to discourage negotiations with people looking to buy a franchise (prospective franchisees).
“It’s a uniform offering,” the franchisors would say, “and we’re required to offer the same opportunity to everyone who wants to buy our franchise.”
There’s always wiggle room
Yes, that’s essentially true, but in business there’s always some “wiggle” room. Essentially, every prospective franchisee is offered the same opportunity, but that doesn’t mean every franchisee gets the same deal. In more than 30 years of working with franchisors, I’ve never known one that did not occasionally negotiate – but always for a good reason.
Sometimes, negotiating is good business sense. For example, if you can bring value to the franchisor by buying a franchise, you’ve got an advantage over other franchisees. All new franchisees bring value to a franchisor, but an experienced franchisee, i.e. someone who has operated competitive businesses for 20 years, or a franchisee who brings built-in business, i.e. royalty flow, to the franchisor – well, those are different scenarios that just might tempt a franchisor to negotiate at the time of buying a franchise.
Wanted: Proven Operators
Let’s say 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 buy our franchise?” Go ahead, tell the franchisor what it’s going to take for you to buy a franchise!
Wanted: New Business
Say you’re converting your 10-year established business to a franchise brand and you’ll bring 1,000 new customers to the franchisor. That’s worth something! No harm in asking the franchisor what it’s worth!
Wanted: The Very First Franchisee
Another example: You’re considering buying a franchise that has no or only a few franchisees. 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.
Contrary to what many people believe (and some say), negotiations occur every day in franchise sales. But they don’t occur without justification. And even then, some deal points will not be negotiated because the franchisor wants to keep the terms uniform among the franchisees. Otherwise, it’s difficult for a franchisor to explain why Franchisee A pays a 5% royalty and Franchisee B pays a 6% royalty. If there’s the slightest opportunity for Franchisee B to claim “discrimination” the franchisor is facing a lawsuit.
Show the franchisor a good reason
There’s never harm in asking a franchisor to negotiate. Territory, training, support, fees, and other points are open for discussion, depending on the circumstances. Franchisors are not going to refuse to sell you a franchise just because you asked to negotiate.
Franchisors negotiate for value
If you can demonstrate value for the franchisor, you may be able to negotiate successfully with the franchisor.
Tags: franchise negotiation
Categorised in: Blog Articles, Buy a Franchise, Franchise due diligence, Franchise negotiation, Franchisee, Questions to ask to buy a franchise
This post was written by Dr. John Hayes
5 Comments
I agree that all the language tries to put you off mentioning a negotiation. Although you say that no one will say no to you because you have asked for a negotiation but I have no experience in this kind of deal and I don’t know how to approach it without seeming cheap. Also, is it true that if you say you won’t go any lower in a negotiation and they don’t accept you have to walk away to avoid seeming weak?
This is helpful thanks, without any previous track record behind me I’m having trouble getting my interest taken seriously. I have never owned a franchise, have no existing client base to bring to the table but I have all this training I want to put into practice….anyone have any suggestions to make this seem like an appealing prospect?
Juan, those are some serious questions! First, I don’t think it’s a matter of “seeming cheap”. Well, maybe it will seem cheap depending on what you’re asking the franchisor to do. However, if you’re going to negotiate you have to be able to make a good case and not simply ask for a discount because you don’t want to pay that much. As for walking away if they say no to your price, you should walk away if the price or the deal doesn’t make good business sense. There’s no harm in asking for a discount or a cheaper price. Be careful of making demands or setting absolutes. “If you won’t come to this price then I will not buy the franchise.” Okay, if they don’t come to your price then I guess it’s best to walk away whether they think you’re weak or not. You set your limits, they didn’t meet them, so walk away. But I don’t think that’s a good negotiation tactic in acquiring franchises.
This all makes sense, but seems very 20,000 ft. I think it would be more effective to look at negotiating with franchisers in a more granular way.
Discuss things like giving yourself an edge in meeting situations, how to approach some horse trading, and what kind of discount you should be asking for and expecting.
Just my two cents.
Juan I used to think the same way, but as John mentions at the end of the day it’s all about value. If you can show them why you will be a valuable ally and the value that you can bring to the brand, a bit of wiggle room on price is not going to hurt you.