Buying a franchise: how to plan for exit costs

Before buying a franchise, it is worth calculating not only the cost of opening, but also what it could cost to leave. An orderly exit protects the franchisee, the brand and its customers. Reviewing this scenario before signing allows you to negotiate specific obligations and avoid leaving costs or liabilities unresolved when the agreement ends.

1. Distinguish between ending the franchise and closing the business

In Argentina, franchise agreements are specifically regulated by Articles 1512 to 1524 of the National Civil and Commercial Code. Article 1522 covers their termination. However, this framework does not replace a review of the specific obligations in your agreement or the other contracts underpinning the outlet’s operations.

The end of your right to operate under a brand does not automatically bring your lease, employment obligations, service contracts or debts to suppliers to an end. Nor does it necessarily mean closing the business: continuing under a different identity requires a review of the applicable restrictions and circumstances.

Ask a lawyer to distinguish between the relevant scenarios: expiry, termination by mutual agreement, termination for breach and other grounds provided for by law. Do not assume you can leave at any time by paying a fixed sum. Whether you can terminate early, and what the consequences would be, requires legal analysis.

For each scenario, prepare a list of obligations that end, obligations that continue and payments whose validity needs to be checked. This allows you to budget without confusing a financial estimate with a right to exit the agreement.

2. Budget for removing the branding

Stopping use of the trading name may involve much more than taking down a sign. Before buying, ask for a written procedure for removing the branding and establishing who pays for each task.

The list should cover:

• External signage, internal graphics and recognisably branded decorative features.
• Uniforms, packaging, bags and remaining promotional materials.
• Business profiles, posts and listings on ordering platforms.
• Equipment or furniture belonging to the franchisor or third parties.
• Repairs to the premises needed after fixtures and fittings are removed.

For each item, identify the owner, the party responsible, the deadline and the estimated cost. Distinguish between items that must be returned and those you own but can no longer use while they carry the branding.

Also ask how compliance will be evidenced: photographs, an inventory, a handover record or an agreed inspection. If the agreement allows the franchisor to commission work and charge you for it, ask for the procedure, supporting expense documentation and an opportunity to put outstanding matters right beforehand to be specified.

3. Agree what happens to stock and outstanding customer commitments

An outlet may end its relationship with the brand while still holding saleable stock, paid orders or services yet to be delivered. These situations need their own procedure, rather than a generic phrase about ‘settling accounts’.

Do not assume that stock will be bought back. If the commercial proposal offers this, ask for the terms in writing: eligible products, required condition, expiry dates, valuation method, transport arrangements and payment date. Separate stock you own from goods held on consignment or subject to special conditions.

For example, a promise to buy back ‘suitable goods’ leaves important questions unanswered: does it include branded packaging? Are products from previous seasons accepted? Who assesses their condition? Resolving these questions before investing makes that promise more useful in practice.

For customers, identify advance payments, open orders, subscriptions, warranties and outstanding benefits. Agree who will fulfil each commitment and how the transition will be communicated. The internal allocation of tasks between franchisor and franchisee does not remove customers’ rights under applicable legislation, including Argentina’s Consumer Protection Law No. 24,240 where relevant.

4. Put together an exit budget you can substantiate

With an accountant, compile the costs of dismantling fixtures, transport, returning property, professional advice and meeting outstanding commitments. Add any obligations that may continue after the last day of trading under the lease, employment contracts and other agreements.

Separate documented amounts from estimates. Do not count a deposit as recovered money until you have checked the conditions for its return, or value used equipment as though you could sell it immediately for its original purchase price.

Ask for the agreement to specify how the final account will be prepared, what supporting documents are required and how discrepancies will be handled. Also document the handover of property and any obligations still outstanding: a receipt covering only some items does not necessarily establish that everything arising from the relationship has been settled.

Practical takeaway: before buying, prepare a sheet with four columns: exit obligation, responsible party, deadline and estimated cost. If answers are missing, negotiate those terms before committing your investment.