Franchise Rights: What You Should Know as a Franchisee
Are looking to start your own business? Getting a franchise is one of the best ways to start one. However, joining a franchise is a decision that requires careful consideration, especially when it comes to franchise rights. What benefits do you have? What are your limitations? Below is a guide for you to know your rights and how these affect the relationship between you and the franchisor.
What Аre Your Franchise Rights?
You buy a franchise because you want to avail of the many benefits accorded to a franchisee. After paying the fee and signing the franchise agreement, you now have the rights to use the following:
The Business or Brand Name
This is the unique name, logo, and trademark of the business. Some of the more popular franchises have a well established and recognizable brand. Great brands can reinforce the business by their popularity and help franchisees get customers just on the strength of the brand or business name. For example, if there are two competing coffee shops and one of them is Starbucks, the other coffee shop is already at a disadvantage due to the expected “customer pull” of the Starbucks brand.
The Franchise’s System for Doing Business
A franchise provides a detailed and step-by-step process on how to run the business. This “blueprint” contains specific rules and regulations that should be followed by the franchisee.
A franchise business system is one of the best assets that a franchisee can get. This tried and true system is the culmination of years of business dealings and experiences. A new business owner will be able to receive a working system instead of formulating one themselves, thus minimizing the risks that come with starting a business from scratch.
The Franchise Operations Manual
The franchise operations manual is the foundation of a franchise’s processes, procedures, standards, and specifications. A franchise should have a comprehensive manual that contains all measurable metrics to keep the operation of each franchise consistent.
The operations manual also ensures that customers have the same experience across all franchises regardless of location and ownership. It’s standard for the franchisee to undergo operational training to empower them on how to properly run the business. McDonald’s require their franchisees to train for 12 to 18 months in an actual restaurant scenario, attend regular seminars partake in one of one training sessions. This is to ensure compliance with the franchise operations manual.
As mentioned, the reasons entrepreneurs invest in a franchise is to gain the benefit of a brand and the recognition that the brand provides. Part of the franchise rights is access to the company’s marketing system. This can include the provision of brand signs, decals, posters, brochures, model standees, and other documentation that market the franchise’s products and services.
Some franchisors require a small portion of each franchisee’s revenue to pool together for marketing campaigns. This is effective for placing TV and social media ads to aid a nationwide campaign. On top of this, each franchisee (depending on the franchise disclosure document) can run their own local campaigns as long as it adheres to the general vision and image of the franchise. You can’t start running campaigns featuring scantily clad dancers if your franchise is built upon a family-friendly image.
Part of your franchise rights is access to the “secret sauce” or “secret formula” that differentiates the franchise from the competition. A restaurant franchise like KFC will share its cooking techniques and special equipment for cooking its world-famous fried chicken.
A service company like a car rental franchise should share their in-house customer management system or inventory system as part of the agreement. This will also include training, ongoing support, and access to future system upgrades.
Basically, the agreement must include use of any machinery, information or technology that’s crucial to the operation of a franchise. The sharing of information and knowledge is not only demanded by the agreement but is also a great way to cultivate the relationship between the franchise and franchisee.
It is common for franchises to assign an exclusive geographical territory for you to cover. This is to ensure that each franchise owner has a dedicated market and that they encroach on each other’s revenue targets. Most franchises will help guide a prospective franchisee in choosing the ideal business venue with respect to the presence of customers and their proximity to other franchisees.
The exclusivity should last for the entire duration of contract, about 5 to 10 years. It renews together with the franchise agreement. The range of proximity will also vary depending on the business. Typically for restaurants, only one should be present per city, town or mall. A car cleaning franchise should have a few blocks of dedicated customers for a healthy revenue stream. This is an important aspect of your franchise rights. With the influx of new franchisees, it’s crucial for this exclusivity to be enforced. A franchise should be able to manage and control the geographical assignments with the good of all franchisees in mind.
This is a provision in a contract that allows the seller of a property the opportunity to “buy back” the sold assets. In this case, this is the franchise’s assets. Usually, the franchisor is first in line to buy the franchise assets. A franchisee should consult their franchisor first before attempting to sell to another party.
A buyback situation occurs when the franchisee is looking to discontinue the business and sell the whole business. This would translate to a transfer of ownership and is within the owner’s franchise rights. Reasons for selling might be due to hardships in running the business or if the business is not earning as expected.
It is important to remember that the assets in the discussion also include non-physical assets. These can be intellectual property rights, proprietary information or software, special processes, and the brand. Additionally, the franchisor can initiate a buyback situation in the event of an end of a contract wherein the franchisee decides not to renew the agreement.
The franchisor can also initiate a buyback. This may happen if the franchisee committed a breach of contract serious enough to necessitate a contract termination.
Final Thoughts on Your Franchise Rights
The franchise rights and provisions discussed in this post should be able to guide you on what to look for when reviewing your Franchise Agreement and Franchise Disclosure Documents. It is also advisable to hire a franchise lawyer to help you go through the franchise rules and regulations to find out what is within your rights.
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