A franchise is a business arrangement where the inventor (Franchisor) develops a plan for the provision of a product or service and another (franchisee), uses the plan to avail the product or service to the market with the same brand and business model (Nieman & Barber, 1998). The franchisor identifies someone with an idea or a proposal and decides to fund his project and give it the financial boost it needs to start off. Franchise is governed by license agreement known as business format. The agreement has all forms of a contract and is bound by the requirements of building and dissolving a contract.
It would not work well for Quick Lube if it takes the offer provided by Huston, to be its main supplier and principal franchisor. First, the franchisor would interfere with their decision-making process because the purchases are from the same company. The franchisor might take off some of the financing, replacing it with what the company does not require, and subsequently affecting the business models and strategies. The franchisor would amount more pressure on the franchisee on how it is operating and selling its product. Therefore, the contract will not be mutual as it was intended. Instead, it would be inclined to the franchisor’s demand and decisions. The deal would also be considered unfavorable because Huston may decide to shift the debts given to the company as finance to the company’s activities, plunging Quick Lube into unsustainable debts. This would be less favorable because the company’s outlined activities may not be achievable (Leibowitz, 2004), thus driving Quick Lube out of business. The supplier holds debt capital in most circumstances; the purchases, most of them are not paid for as they are taken but are paid later. The franchisor may confuse the debt requirement and the funds it provides as a franchisor that may lead to increased debt which hold different terms as the franchise consideration.
- In the history of the franchise, the main reason for creation of the franchise was to solve the dispute between Martin and Hegret due to difference in the operations. Martin suggested for the company; Super Lube, to be servicing the lube, motor oil, and filter needs while Herget believed in operating service centers. For the company to be able to file a law suit against Huston, the it must be able to provide evidence of any case of breach of contract that could have existed between the companies involved; Huston, Quick Lube Franchise Corporation, Super Lube Inc. A contract exists between Super Lube and Quick Lube. The Super Lube Inc is Quick Lube’s major franchisee, therefore they benefit from Super Lube’s finance. The change in ownership from Super Lube to Huston would mean that the two companies have a breach of contract because the franchisor would be recognized as a dead company. Huston bought the company’s share of more than 80 percent. Quick Lube would then sue on the basis of breach of contract by Super Lube because the Huston Company wants to change the contracts terms of agreement from service center-level profitability to motor oil sales. The company may sue for damages incurred through the losses after the change in the contractual terms and conditions. From the meeting, Herget says that in the monologue meeting, the company rejected the previous terms relevance stating that the future of the company is what mattered most.
- Herget is the manager of the leading franchisee, Quick Lube Franchise Corporation. The decision of the leading franchise would largely affect the decision of the other franchisees. Therefore, Huston thought that having to convince the leading franchisee would enable them to reduce the controversies that are holding back the company at the franchise. From the meeting held at the franchisors, it is easy to notice the resistance the company is facing after the takeover by Huston. Solving the problem would require the company which brings the highest returns to be given preferential consideration and be offered the highest priority in servicing in the system (Leibowitz, 2004). If the franchisor loses its major franchisee, Quick Lube Franchise, the company would subsequently loose most of its returns. It is, therefore, more responsible for the company to take into consideration their main franchisee.
- The meeting was to convey a lot on the controversy. Te Huston proved to others that they cannot be trusted even after the meeting had taken place. It would have been responsible for Herget to take with him his lawyer, who would have acted more in solving the controversy by referring mostly to the terms of agreement. Herget confirmed that in the meeting the conversations was a monologue; he did not participate in the conversation much. His response was not much regarded. In the presence of a lawyer, the conversation would be made clear enough with the terms of initial agreement being the main source of agreement. I would advice Herget to carry with him the financial statements of the company with the comparable statements of super Lube Inc. With the documents, it would have been easier for Herget to convince the management of Huston’s that his company had more worth in the franchise, and that without Quick Lube; Super Lube will be incapable of thriving into the market despite the investments efforts made. The documents give a more tangible and acceptable statistics. With the documents the company would have more convincing power that they are worth the capability to make Super Lubes future grow (Timmons & Spinelli, 2004). The documents would also support their main purchases, which would mean they do not hold the responsibility of purchasing from Huston. The company’s worth is also valued in the company’s goodwill that led to its faster growth.
- From the consolidated statement of financial position, Quick Lube is worth more than ten million US dollars. The liquidity ratios also denote the company’s dependence is not inclined towards the franchise. The company’s ratio denotes also the capability to pay off the debts to be paid. The company’s worth is also valued on the goodwill that the company has put in place for its growth since 1982, as shown in the growth list to 1991. It must be noted that in the growth list, company sales have been increasing relative to the increase in the number of branches.
- The company’s net worth is dependent on the goodwill offered for it to grow up to a given level. If the goodwill from the stakeholders is favorable, the company’s value is likely to shoot up and be anchored in the hope that it would be a venture worth carrying out (Palepu, et al., 2007). For example, Quick Lube’s value, just like any other company relying on stakeholders, is higher because of the benefits the latter is getting as well as the prospective benefits.
Quick Lube Franchise Corporation is rapidly growing from the other means of finances. The company already holds a deal with Huston as their financier on the estate they are building. Additional franchise deal would mean requiring more operational activities. It would, therefore, be irresponsible for the company to hold another contract with Huston, especially as their franchisor. Having another contract as a franchisee is likely to redirect their attention to other business demands, mainly from the franchiser.