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My Franchise is Failing

My Franchise is FailingFranchise buyers aren’t expected to know everything there is to know about a franchise or how to best maximize its profits. A lot of the expertise of running a franchise comes with experience, which takes time – lots of time. But what should you do if you find yourself thinking My franchise is failing and I don’t know what to do! ?

For starters, don’t jump to the conclusion that you made a bad investment. Take a step back, make sure you are aware of the risks that went into buying the franchise in the first place, and then go to an attorney to see if there may have been any fraud involved.

(Read this article to learn about what a franchise is and the benefits of franchising.)

Even though franchise buyers aren’t expected to run the franchise perfectly their first go-around, every buyer knows how well the business should be doing. After all, the franchise seller made multiple presentations and handed over numerous documents, which were fully loaded with statistics and profit projections that the buyer could expect to make.

The key to projections is that that they don’t always turn out to be reality. And that’s okay. At least legally speaking. A projection of profits that doesn’t come true is just one (if not THE) risk that every franchise buyer takes. It’s just par for the course.

At the same time, it’s not always the franchise buyer’s fault that their business is going under. A genuine problem arises when the seller actually promised that the franchise would make a certain profit or that certain technology had a certain inherent value. Even if your franchise is turning a profit, if the profit is not what was promised, you could have a cause of action against the seller for misrepresentation.

Many buyers of franchises aren’t aware of the protections available when their franchise fails.

In Florida, there is a separate cause of action for misrepresentation in the franchise context. Florida Statute Section 817.416 (Franchises and distributorships; misrepresentations) describes the remedies available when the seller or founder of a franchise:

  1. Intentionally misrepresents the prospects or chances for success of a proposed or existing franchise or distributorship;
  2. Intentionally misrepresents, by failure to disclose or otherwise, the known required total investment for such franchise or distributorship; or
  3. Intentionally misrepresents or fails to disclose efforts to sell or establish more franchises or distributorships than is reasonable to expect the market or market area for the particular franchise or distributorship to sustain.

The remedy for such misrepresentations includes the return of all moneys invested in the franchise or distributorship and reasonable attorneys’ fees.

Here is a great article by the Florida Bar Journal that discusses franchise protection and causes of action for the franchise buyer

If you have purchased or are looking to purchase a franchise, and you have questions about the representations made by the seller, make an appointment to talk with Attorney Francis Boyer today.

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