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Do you understand the franchisor’s expectations?

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Inside Franchise Business: find out what your franchisor expectsThe franchise relationship is unique - its most familiar equivalent being a marriage.

Like a good marriage its success depends on the time and effort invested into building a solid foundation. Without this, any genuine relationship is unable to flourish and grow. 

Both parties need to be committed to the partnership - accepting and understanding that there will be differences and challenges, and acknowledging that a significant amount of effort will be required in order to manage the expectations and outcomes.

A franchise relationship is built on these same values and trust.

Why are expectations important?

The Oxford Dictionary defines ‘expectation’ as, “a strong belief that something will happen or be the case.” The expectation of each party in the franchise relationship is to expand the business through a franchise system, while being aware of the role each party will play in the development and operation of the business.

Why are there expectations from franchisors? The obvious answer is that they have expended their effort, time and money into developing considerable intellectual property and what they believe to be a sustainable business concept.

This includes the brand, marketing strategy and collateral, legal documentation, an operations manual, financial  models and performance data and training and support structures. It’s also important for the franchisor to create viable systems and processes to ensure the efficient operation of the business, while uplifting its profitability and establishing a distinction from competitors in the market.

In return, franchisees are expected to execute and run their business according to the procedures and training set out by the franchisor and the operating system.

However, it’s also important to highlight that franchisees are independent business people and the success or failure of the business will be determined by your business decisions.

For example; the execution of the franchisor’s operating system, whom you hire, how much you pay your employees, how employee’s work hours impact the business, and the price  charged for products or services can determine success or failure.

While the franchisor can provide advice and guidelines on these significant decisions, ultimately the franchisee is responsible.

You assess the business, take advice and make the decision to enter into a franchise agreement.

You have voluntarily committed to operate the business according to the terms and conditions set out by the franchisor.

There is an expectation that you are responsible for the activities of the business, including its failure or success.

Understanding the franchise commitment

A franchise is a business relationship regulated by a contract or franchise agreement. The Franchise Council of Australia also suggests that it “must involve regulations and standards to define and protect the quality of the service or products to be provided or sold by the franchisee to the consumer.”

Who owns the business? The franchisor owns the intellectual property: the trademark(s) and the operating system for the franchise business.

The franchisee is licensed (under contractual agreement and after seeking legal advice) to use both the trademark and the operating system according to the terms and conditions set out in the franchise agreement. This will often include marketing and brand obligations and adhering to the minimum levels of performance required. 

Finally, the commitment also underlines the fact that the franchisor and franchisee are expected to fulfill their respective responsibilities under the contract.

Are you a good match?

While there are a number of factors that would define the ‘perfect franchisee’ - some of the notable responsibilities include legal obligations, financial expectations and relevant characteristics determined by the franchisor. Determining factors can be seen in the following:

Passion and dedication

Understanding the contractual obligations of the franchise system is a given, However, given franchisees spend an average of seven years in the network, you also need passion and dedication toward the brand. A franchise is an owner operator model and franchisors look for franchisees who will commit their full time effort to running the franchise business.

Good faith and attitude

The Franchising Code of Conduct stipulates the obligation for both parties to act in good faith. This encompasses both party’s honesty and cooperation in both its actions (and inactions) including pre-contractual negotiations, during and through to the end of term.

Legislation and contractual compliance aside, a sincere attitude by both is also imperative.

More often than not, issues or problems exist because of a mismatch of expectations which may lead to conflict or even legal disputes.

Commercial acumen

Franchisors also expect franchisees to have the entrepreneurial mindset, judgement and tenacity to drive their franchise business.

Owning your own business requires managing costs, training and managing staff, marketing in the local territory, engaging customers, retaining their loyalty and maximising the resources within the franchise system.

Communication

Communication is integral to maintaining any successful relationship.

A good franchisor will listen to its franchisees and continuously support the franchise network for mutual growth. Where expectations are not being met, a franchisor should communicate with the franchisee to understand, resolve and eliminate any potential problems that may arise.

In the event of a disagreement, both parties need to use the dispute resolution process including mediation where necessary, to communicate effectively and understand each other’s obligations from all angles.

The compliance of the franchise system and the franchisor’s lawful directions

Lastly, the franchisee is rightfully expected to know, understand and comply with the key features of the franchise, such as the franchise fee, royalty charges, marketing and brand obligations, and the rules specific to the location and the franchise agreement.

The franchisor’s expectations

Most franchisors (or their outsourced recruiters) run lead generation and recruitment campaigns to search for quality candidates to join their franchise network.  It’s imperative to identify the key characteristics, qualifications and skills that are required by the franchisor.

Moreover, the franchisor needs to articulate their expectations in terms of values clearly at every touchpoint with prospective franchisees from screening to selection.

An example can be seen in the franchisee ‘avatar’ described by the franchisor for Bare Naked Bowls based in Sydney. Newly launched in the franchise space, with three grants in the past few months,

Bare Naked Bowls is engaged in an expansion plan across New South Wales and beyond. Co-founder and director of operations, Josh Porteous has clear expectations; “You​ ​should​ ​wear​ ​the​ ​brand​ ​ethos​ ​on​ ​your​ ​sleeve​ ​and​ ​in​ ​your heart.​ ​Be​ ​active,​ ​fit​, ​healthy​ ​and​ ​genuinely​ ​interested​ ​in​ ​balancing​ ​your​ ​life​ ​through​ ​eating and​ ​living​ ​well.​”

The business is searching for candidates who can demonstrate their commitment to the brand and business values.

Determine your success

Identifying the franchisor’s expectations can ultimately determine your success and performance within the business.

Different franchise systems will require certain values, education, skills or experience depending on the industry and their business expansion model.

Most importantly, the longevity and success of your franchise business will depend on the quality and cohesion of the franchise relationship.

Ashley Tan

Ashley is a commercially driven franchising lawyer who has worked with Bankwest, in business banking with Westpac and in risk and compliance for Unicredit (now UniBank). Ashley was first exposed to franchising during an in-house role with Quick Service Restaurants Holdings (now Craveable Brands). An enthusiastic member of the DCS Lawyers team, she develops and reviews franchise documentation, advises on general commercial and corporate matters, and has a special interest in dispute resolution and consumer law. View More...
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