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What you can expect from your franchisor – really

May 15, 2012

This is the second in my series of articles about the basic fundamentals of a franchise business. While I have written this primarily for a franchisee I hope franchisors will benefit from my perspectives.

In my first article I commented on the relationship between the franchisee and franchisor. Essentially that it is a symbiotic relationship where one depends on the other, a co-dependency. But one that is inherently weighted in favour of the franchisor. In this article I will share my observations on the franchise agreement, the cornerstone document that usually will quietly sit in the file drawer. But it is important to distinguish your franchisor’s activities that are contractually obligated from elective.

Every franchisor, yours included, makes representations of their commitments and provide business elements to their franchisees in return for the fees you pay both initially and monthly. In the USA they are in the FDD (Franchise Disclosure Document) and the Franchise Agreement, in other countries they will be in the disclosure documents, agreements, and contracts you signed when you bought your franchise.

Pull them out again.

At its most fundamental level, your franchise fees allow you to use the name, trademarks, operating systems, and processes. The most valuable intangible you are buying into is the on-going relationship with the franchisor. As in any relationship there is only so much that can be anticipated and documented. In fact, there is some value in not having a rule-book that is too complete and rigid. However, any support or involvement by the franchisor needs to be spelled out in writing, or it may go away.

The relationship mainly relies on regular and on-going activities together. Look for sections titled, “Franchisor Obligations” or similar wording.

Make a list of specifically what they are required to give you, such as operations manuals; provide for you, such as pre-opening training; facilitate for you, such as meetings, committees, conferences, etc. Look for support commitments, such as operations evaluations, new store openings, marketing, purchasing, site selection and development, construction, equipment, menu management, etc. What matters at this point is specifically what is written. Look for commitments about frequency, duration, and who is going to provide the services. Look for catchall phrases, such as, “and other services that may be necessary from time to time”.

You want to be absolutely clear on what they are obliged to do. I encourage you to make this list, an extract of the documents, as it can be hard to keep track of all this in the regular course of business. It will help you to be sure you get what they are required to do. But there is more.

Often they will provide other support that is not in the agreements, such as consultations or reference data on topics like Local Marketing plans and activities, benchmark financial data, best practices, etc. Make a list of these too. It doesn’t matter whether they have done this for you or someone else. Be detailed and specific. What was done, when, where, why, by and with whom, how frequently, and what were the results? This is an indication of their capabilities and involvement with their franchisees’ businesses. In my previous article I referred to the different types of relationships. Here is where you will see clear indications, just in case it isn’t already clear.

And it is definitely a good news/bad news situation. As they are not legally obligated to provide these additional services, they can be very easily stopped or changed for the franchisor’s own motives. These could be a change in strategy and priorities, financial or manpower constraints, or even that they are not happy with you and are withholding optional support. Whatever their motives for providing these services, you need to know that they are not required and may therefore go away. And there will be nothing you can do about it – except be ready to do them yourself.

When looking at the full range of activities, bear in mind one important fact. The franchisor provides these services for their own reasons. This may be to assure compliance to brand standards and practices, to evaluate your viability, to gauge whether you are someone ‘worthy’ of growth, or a part of a strategic plan such as branching out into a new product line or servicing a new day part.

An operation’s evaluation is an excellent example. The evaluation itself is often not in the Franchise Agreement but the requirement to maintain and operate the franchise according to the franchisor’s standards is. Depending on how the evaluation is used, it is either a powerful tool to help you run a great operation with action plans for you and your team and support commitments by the franchisor, or it can be a simple assessment of your operations versus the franchisor’s standards and norms that will go into your file for use if and when they need to make a decision on you.

Let’s be clear. No franchisor wants to see a franchisee struggle or risk failure and will usually provide support to assist you. It’s just that some, by their behaviours, seem to care more than others. They may not want the negative effect of a low performing location or even a closure on their brand image, but if they control the property and have a ready supply of franchise applicants, they can usually minimize the aftershocks. Any closure will create more work for the franchisor so few of them will be completely apathetic. Some are simply more willing, and able, to help a franchisee who is struggling.

So it comes down to knowledge about your mutual obligations and distinguishing those activities that are required versus optional. Hold yourself and your franchisor accountable and the road to success is that much easier.

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