Upon entering into a franchise relationship, it is important that the franchisee is aware of their rights, as well as the responsibilities they must uphold. Some of these rights and responsibilities are relevant to the initial stages of becoming involved with a franchise, while some will span the entire life cycle of the franchising process. A clear understanding of their entitlements and obligations will help lead to greater success for the franchisee.
Rights
In many cases, franchisees are entitled to financial assistance. This may come directly from the franchisor, or from a third-party affiliated with the franchise. Such financial assistance may be of substantial benefit to the franchisee in the early stages of business. With regards to inventory, the franchisee has the right to competitive sourcing of the products, services and supplies needed for the running of the franchise. The franchisor must be able to meet the requirements of the franchisee, or have appropriate arrangements with approved suppliers in place if they will be unable to meet these requirements.
Almost all franchisors will provide the franchisee with training once they join the brand. It is in the franchisor's interest that the franchisee will be able to communicate the brand’s message and product/service effectively to the consumer. The franchisee must find out if this training and support will be ongoing throughout the life of the franchise, or if it is only provided at the beginning of the process. The franchisee may also be entitled to materials and resources related to the specific franchise, such as an operations manual.
The franchisee holds the right to display their chosen brand’s logo and marketing material, as well as other elements such as a company uniform. This logo and marketing material may be promoted on social media, as well as being displayed in the franchisee’s place of business. The franchisee has the right to trademark protection on this imagery and branding.
The franchisee has the right to full disclosure from the franchisor. This is an incredibly important element of the franchise relationship. This entitles the franchisee to access or be shown any earnings data which may be relevant to the franchisee. This may impact the franchisee’s decision to sign a franchisee agreement or remain in the franchise relationship.
The franchisee holds the right to the franchisor’s loyalty, good faith and fair dealing, and due care in the performance of the franchisor’s duties. The franchisee is also entitled to impose reasonable restraints upon the franchisor’s ability to require changes within the franchise system. The franchisee has the right to representation and access to the franchisor, to associate with other franchisees, and holds the reasonable right to renew the franchise. The franchisee also has the right to terminate the franchise agreement on grounds of reasonable and just cause, and holds the right not to face termination of the agreement, unless for just cause.
Responsibilities
The franchisee’s responsibilities may be analysed within three categories: financial responsibility, business responsibility, and personal responsibility. It is the franchisee’s ultimate responsibility to ask themselves the following questions before entering into a franchise agreement, as well as to check in with themselves throughout the franchising process, or length of the franchise agreement.
Financial responsibilities
- Will you be able to afford to establish the business, without knowing when exactly it will begin to produce a profit? While three months' working capital is often suggested as sufficient, franchisees may need a year’s worth of savings to provide for themselves until the franchise is generating a liveable wage.
- Will you be able to raise financial backing? Franchisees must be aware of their financial credibility, and ask themselves how much of their assets are they willing to put up as collateral.
- Do you have a solid understanding of how much you are actually investing in the franchise, as well as an accurate estimate of the cost related to the running the business?
Business responsibilities
- Are you suited to being a leader? Franchisees must be able to handle staff and delegate, and possess the ability and commitment to work long and often unsociable hours, particularly during the fledgling stages of the franchise.
- Simultaneously, are you able to take direction? Franchisees must be aware of, and willing to accept, the discipline of the franchise system. The franchisor retains a certain level of authority throughout the life span of the franchise, and the franchisee must be able to maintain this working relationship.
- Have you prepared a business plan in order to secure the deal, as well as to bring clarity to your own vision? This should highlight the business concept, your objectives, a description of how you intend to utilise the product/service, a marketing plan, operational elements, premises/location, and estimated financials.
- Do you have a thorough understanding of the franchise agreement? It is crucial that the franchisee fully comprehends the provisions of the agreement, as they will be legally obliged to uphold specifications for the duration of the franchise relationship. It is also the franchisee’s responsibility to ensure that any verbal promises that were made by the franchisor are subsequently written into the agreement.
- Have you investigated the party with whom you are entering into business? Do they have a good track record and reputation?
- Has the duration of the franchise agreement been clearly identified? Franchisees should also know if the agreement is renewable when the initial contract expires, and if any renewal will constitute a nominal amount or the full franchise fee.
- What region/location are you entitled to operate within, as per the franchise agreement? If it is an overseas/international franchise, is there an awareness of the brand within your chosen region?
- Have you made yourself aware of your competitors, and identified what separates your product/service from the rest?
Personal responsibilities
- Do you possess the entrepreneurial spirit required to be a successful franchisee?
- Will your involvement as a franchisee place any demands on your family – will they be able to assist you in any way? What, if any, are your childcare commitments?
- What are your long-term goals in relation to franchising; where do you see yourself in five or ten years?
- Do you feel you possess the physical and mental temperament required for self-employment? Will your age permit you to run the business long enough in order to recover your initial investment and return a profit?
In summary, the franchisee holds certain rights when entering into a franchise agreement, yet they must also be aware of their responsibilities. It is the franchisee’s duty to ensure they comply with the financial, business-related and personal responsibilities that arise from the franchise relationship. A clear understanding of these rights and responsibilities will inspire confidence in the franchisee, leading to greater success within the franchise industry.