Franchising offers the promise of a proven business model, but sometimes reality falls short of expectations—especially when profits fail to materialize. For franchisees facing ongoing losses, it may be time to consider a graceful exit from the franchise agreement. Whether due to market mismatch, unanticipated expenses, or simply underperformance despite best efforts, having a candid and constructive conversation with the franchisor is essential. In this post, we outline key talking points for franchisees who need to initiate this difficult discussion. From presenting financial data and outlining attempted remedies to proposing collaborative exit solutions, these strategies aim to protect both your business interests and your professional relationship with the franchisor.

Here are comprehensive talking points that should be tailored to the specific franchise agreement and any legal counsel's input, but they can serve as a foundation for discussion and negotiation.

🔍 1. Frame the Conversation Around Business Reality

• “Despite my best efforts, the franchise has not reached a sustainable level of profitability.”

• “I've followed the system and invested substantial resources, but the unit economics are not working in this market/location.”

• “I'm bringing this to you now to find a collaborative path forward rather than letting this deteriorate.”

📉 2. Present Financial Documentation Transparently

• Share P&L statements, tax returns, or bank records showing losses or minimal profit.

• Highlight expenses driven by the franchisor's requirements (e.g., marketing, royalties, mandated suppliers).

• If applicable, compare your performance to Item 19 earnings representations in the FDD.

🔄 3. Describe Efforts Made to Improve Performance

• “We've tried local marketing, customer engagement strategies, and even renegotiated lease terms.”

• “I've asked for support and implemented suggestions, but results haven't improved.”

• “I've met operational standards and invested in training and compliance.”

🧩 4. Emphasize Misalignment or Mismatch

• “The model may not be suitable for this market or demographic.”

• “There appears to be a disconnect between the franchise concept and local customer demand.”

• “I believe the initial projections did not adequately reflect operational realities.”

🤝 5. Propose Mutually Beneficial Exit Options

• Early Termination: “Would you consider a no-fault early termination to allow both parties to cut losses?”

• Resale Support: “Can we explore finding a replacement franchisee? I'm open to working together on a transition.”

• Buyback or Takeover: “Is there any possibility of the franchisor repurchasing the location or inventory?”

• Waiver of Future Obligations: “In exchange for a clean exit, I'm willing to forgo reimbursement of certain costs.”

⚖️ 6. Discuss Potential Legal and Reputational Risks (Tactfully)

• “I want to avoid escalation or default—let's resolve this professionally.”

• “Continuing under current conditions could damage the brand locally.”

• “Litigation or negative reviews benefit no one. I believe a cooperative solution protects both parties.”

🧾 7. Reference the Franchise Agreement Where Helpful

• “The agreement allows for early termination in certain conditions—can we explore those clauses?”

• “Let's look at any language around business failure or material hardship.”

• “I want to ensure we're both clear on post-termination obligations like de-branding, non-competes, etc.”

🛡️ 8. Reaffirm Your Commitment to Acting in Good Faith

• “I've approached this in good faith and want to honor the relationship and brand integrity.”

• “I'm not seeking to shift blame—just to find a realistic business resolution.”

• “I appreciate the opportunity and want to part on respectful terms."

Conclusion: Protecting Your Interests While Preserving Professionalism

Exiting a franchise agreement is never easy, but it can be done respectfully and strategically when guided by transparency, documentation, and open communication. As a franchisee, your goal should be to minimize losses, avoid conflict, and maintain your reputation, all while honoring any legal obligations under the agreement. By preparing thoughtfully and engaging the franchisor with solutions in mind, you increase the likelihood of reaching a resolution that serves both parties. And remember—seeking legal advice early in the process can help ensure you're making informed decisions that safeguard your future business endeavors.