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How to Deal With a Poorly Performing Franchisee 

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Franchising enables business owners to grow their brands while their franchisees handle the daily operations of their franchise locations. The success of a franchise system heavily depends on the performance of each franchisee. When a franchisee fails to meet performance expectations, this can pose challenges for you and your overall franchise network. This article will explain how to deal with a franchisee’s poor performance and provide strategies for handling underperformance. 

1. Understand the Root Cause of the Underperformance 

A franchisee might be underperforming for many reasons. Their behaviour may not result from a lack of effort, but rather a gap in their knowledge, changing market circumstances, or perhaps your expectations are too high. Understanding the root causes of franchisee underperformance can bring you closer to fixing the problem. 

To find the root cause, you will need to communicate with the franchisee. You should do so clearly and respectfully, maintaining an open line of communication. Such communication will enable you to discuss the problem effectively. 

For instance, if the underperformance results from a gap in the franchisee’s knowledge, you might provide further training and support them to fill this gap. If it results from fluctuations in the market, you may need to adjust your expectations or, help the franchisee to adapt aspects of their operations or marketing strategies. If the underperformance stems from the franchisee’s approach to operations, you can help them adjust it. 

2. Follow the Terms of the Franchise Agreement 

It is vital to outline your expectations clearly within the franchise agreement so franchisees can easily understand what you require them to do. By enabling them to understand your expectations, you can mitigate the risk of a franchisee’s underperformance. 

The franchise agreement should also clearly stipulate your expectations and the performance standards you expect them to meet. Within this agreement, you must identify the steps to resolve underperformance. Then, when a franchisee is underperforming, you can follow the steps set in the franchise agreement. Its terms may instruct you to inform the franchisee they are underperforming and work with them to develop a plan to correct their performance. 

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3. Develop a Plan 

You should communicate with the franchisee directly and help them meet the required standards. You can develop a plan to monitor franchisee performance, setting out the steps they can take to achieve a suitable resolution. The plan should be clear and structured. It will set measurable and achievable goals. Using the plan, you can monitor their ongoing performance and progress. 

It can be crucial to consult a lawyer when dealing with franchisee underperformance. Legal advice can help with many aspects of this process, including:

  • understanding your rights and obligations and those of your franchisee; 
  • explaining how you can handle underperformance; 
  • ensuring the terms of your franchise agreements are clear to ensure franchisees are aware of their obligations and the standards you expect them to meet; and
  • mitigating the risk of legal disputes. 
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5. Terminating the Franchise Agreement

Franchisees who fail to meet your brand standards can pose a risk to the reputation of your overall franchise network. When franchisees fail to comply with the standards set in the franchise agreement, they are in breach of contract. Terminating this contract is a last resort. However, termination may be necessary if a franchisee’s consistent underperformance breaches the franchise agreement and you have no other options. 

Following notifying the franchisee of the termination of the franchise agreement, you will need to take into account the sale of their franchise location. Additionally, you must consider helping ease the transition from one franchisee to another. 

Key Takeaways 

Dealing with a poorly performing franchisee requires a careful balance of communication, support and adherence to legal obligations. The following table outlines several essential aspects and best practices for handling franchisee underperformance. 

Consideration Explanation 
Identify the root causeThe first step is understanding the underlying reasons for the franchisee’s underperformance. These can range from knowledge gaps to external market factors. 
Follow the terms of the franchise agreementWhen dealing with underperformance, you must follow the terms of the franchise agreement. The agreement should clearly outline performance expectations and the steps you will take to resolve underperformance. 
Develop a planWork with the franchisee to create a clear plan for improving performance and set achievable goals. Following this step, you can monitor their progress and help them to meet their performance standards. 
Seek legal adviceIt is a great idea to consult a lawyer when handling franchisee underperformance. Their advice can help you to mitigate risk and navigate your responsibilities. 
Consider termination as a last resort Terminating the franchise agreement is a last resort after exhausting other options. 

If you would like legal advice regarding a poorly performing franchisee, our experienced franchise lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.

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Jessica Drew

Jessica Drew

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