Franchisors and Franchisees: Know Your Obligations From Day One

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Franchisors and franchisees obligations

The relationship between franchisor and franchisee is key to the success of a franchise. The foundation of this relationship is grounded in both parties understanding their obligations and ensuring that they fulfil their responsibilities from day one.

As expected, when a new franchisee comes on board the franchisor must train, support and guide the new recruit through the early days. However, as time goes on, the franchisee becomes more knowledgeable, experienced and confident and therefore more obligations transfer from the franchisor to the franchisee. The franchise agreement documents the fact that the franchisor generally has more obligations than the franchisee, but the franchisee's ongoing responsibilities are vast compared to those of the franchisor.

Here’s a summary of the franchisor and franchisee obligations to set you up for a successful business partnership.

Fees

Before a franchise can be purchased, it’s the responsibility of the franchisee to ensure that they can fund the opportunity. The franchisor will inform the franchisee of the costs that are associated with the franchise model during the recruitment process.

The franchisee must make sure that they can afford, not just the franchise fee, but the set-up costs and ongoing fees. Being undercapitalised is the most significant reason for franchisee failure, so having a full understanding of all franchise expenses and having adequate working capital is essential for them to succeed.

It’s widely believed in the franchise community that the initial franchise fee should only cover the costs that the franchisor has incurred to recruit and train franchisees. If a profit is made from the franchise fee, there is a concern that franchisors will focus more on recruiting new franchisees than supporting the ones they’ve already got.

Training

The training and support that a franchise opportunity provides are one of the main reasons that franchisees new to business ownership choose the franchise model over running an independent venture. A comprehensive training package gives the franchisee the confidence that they will be taught all the operating know-how to run the franchise effectively. Providing quality training is also beneficial for the franchisor as it ensures that the franchisee will follow the franchise model successfully.

The obligation on the franchisor to train the franchisee is set out in the franchise agreement, but the contract is very vague when it comes to the content or quality of this training. While the responsibility lies with the franchisor to offer initial training, the onus is on the franchisee to ensure that the training package meets their expectations and provides everything needed to be able to own and operate the franchise effectively.

There is no right or wrong when it comes to the content or format of the training. It just has to be suited to nature of the franchise. For managerial or administrative franchises, the training may be purely classroom-based, whereas, for hands-on roles, job shadowing and on-the-job training are appropriate. Take note, that although the cost of your initial training is usually covered by the franchise fee, you’ll be expected to fund your travel and accommodation costs if relevant.

Operations manual

The operations manual is an extension of the rules set out in the franchise agreement and provides franchisees with all the information they need to operate the business. Once training has been completed, it’s the franchisors’ responsibility to provide the franchisee with copies of the manuals, both physically and electronically.

Not only does this ensure that the franchisee continues to fulfil their role correctly, but also means that they will be less reliant on the franchisor as they have all the information about the business to hand. This is why developing comprehensive and accurate operations manuals is a good investment for franchisors to make.

Support

Although the initial training and operations manual will ensure that the franchisee can operate the business successfully, there are many more skills and knowledge that need to be acquired on an ongoing basis.

This is why the franchisors’ obligations don’t end as soon as the training has been completed. Guidance must also be provided to cover elements of running a business such as marketing, recruitment, and staff training. If a franchisee has no experience of business ownership before, these are factors that they will need support and advice on throughout their franchising journey.

Marketing

When a franchise is purchased, the franchisee benefits from a recognisable brand name and an established business model. The franchisors must ensure that the brand has an excellent reputation and level of awareness nationwide. Although the franchisee will also have a responsibility to promote the business locally, this simply validates and supports the advertising that the franchisor arranges.

There may be a charge associated with the franchisors’ advertising activity in the form of a monthly marketing fee. Franchisees are expected to contribute to this pot so that effective marketing plans can be developed and implemented, which benefits all franchisees.

Territory

The development of a franchisees’ territory is the responsibility of both the franchisor and franchisee. The franchisor must perform the required demographic research to ensure that there is an adequate customer base to support a franchise in a geographic area. The franchisee must then optimise the available audience by producing compelling local marketing campaigns, as well as providing excellent customer service to make sure that customers keep returning.

It is vital that both the franchisor and prospective franchisees understand what is expected of them before the franchise contract is signed. Potential investors need to be happy that the quality and quantity of the training and support is of a level that will enable them to operate profitably. Similarly, the franchisor needs to offer enough support to allow the franchisee to understand and implement the franchise system and provide a consistent brand experience for customers.

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