How to Shut Down a Franchise
Shutting down a franchise is, in many ways, just like shutting down any other business. However, the process is made more complicated because your franchising partner must be dealt with, along with the other aspects of closing down shop. People shut down a franchise for one of two reasons. Either they are operating a franchise and wish to stop doing so, or they own a franchised brand and want to discontinue rights to a substandard franchisee. In either case, the steps are similar.
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Instructions
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Review your contract. Most franchise agreements have an "exit clause" which specifically details the circumstances under which one party can choose to leave the agreement. Usually this is because a certain amount of time has passed or because one party has failed to live up to their side of the contract. Even "at will" contracts usually have a period of notification.
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Based on the contract, choose your strategy for ending the agreement. If the time period is only a short time away ("short time" being determined by how badly you need out), then plan your closing accordingly. If you intend to end the agreement based on the performance of the other party, make a plan for gathering evidence of poor performance.
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Inform your franchise partner in writing of your intent to end the agreement. This notification should include the date of the letter, the date of your intended closure, cite relevant passages from the contract and be sent registered mail so you can prove it was received. Also be sure to keep a copy for your own records.
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Based on your franchise partner's response, set a time-line for shutting down. If the partner seems amenable, this can be a short timetable. If it looks like they intend to fight you on it, plan for a longer period for the project.
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Carry out your timetable with an eye for saving as much money as possible as the business shuts down. If you're a franchisee, move toward vacating the business and property as quickly as possible. If you are the owner of the franchise, consider moving in a more compatible franchisee.
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Tips & Warnings
Consult with your lawyer if your franchise partner intends to fight. If possible, seek arbitration or mediation before going to court. Both methods are far less expensive than a court battle.
If you have a long contract in place and don't see an easy way out, approach your franchise partner about a buyout. If you can move a new person into the franchise, everybody wins.
