Classification of Activities Undertaken by Franchisees under Franchise Agreement
Dashmeet Kaur | Updated: May 09, 2020 | Category: Agreements
Anyone that intends to enlarge the business must have come across the growth strategy of franchising. It is one of the fastest and most accessible modes of business expansion. A primary reason to choose the franchise business is its increasing success rate and corresponding decrease in failure rate. The initial investment required to start a franchise business is minimalistic as the working model already exists. It eliminates the need to invest in various components by bringing the business on track. This blog outlines the roles and responsibilities of a franchisee as per the franchise agreement.
Who is a Franchisee?
A franchisee is an individual who handles the operation of a franchise business. The franchisees hold power to utilize the trademarks associated with the brands of an existing business. A franchisee has the proprietary knowledge of the market, thereby, sells the same brand by following the same standards prescribed by the franchisor’s business. The franchisee becomes an independent operator and owner of the third-party retail outlets called franchises.
When an entrepreneur wants to accumulate more market share and increase the geographical presence of his business at the cheapest cost, then he chooses to create a franchise for his brand name and products. Such an entrepreneur is termed as the franchisor.
The franchisor is the existing or original business owner that sells the right to use its business model and branded products. In return, the franchisee needs to pay specific fees or royalty and comply with the obligations set by the franchise agreement.
The franchisee purchases the right to sell the franchisor’s goods and services under the existing business model & trademark.
Roles and Responsibilities of Franchisee
Each franchise agreement outlines the terms, conditions, roles, and responsibilities of a franchisee. Majorly a franchisee has four core responsibilities that lead to the success of franchising:
- The first and foremost duty of franchisees is to protect the franchised brand. It can only be accomplished by operating the franchised business under strict compliance and also adhere to the operating standards.
- Another duty of a franchisee is to build a strong customer base by offering only standard products & services which are approved by the superior customer service.
- The franchisees are responsible for allocating competent human resource. They have to ensure that all employees are adequately trained, and the franchised business is staffed all the time.
- Lastly, the franchisees must also implement robust marketing techniques. A franchisee must promote and advertise the franchised brand according to the guidelines given by the franchisor.
Relationship between a Franchisor and a Franchisee
Several unique characteristics embody the franchisor and franchisee relationship. A cord that ties together both franchisor and franchisee is the franchise agreement. Let’s perceive some facets of the relationship between franchisors and franchisees:
The nature of a franchisor and franchisee relationship is similar to that of parents and children. During the inception stages, the franchisor fosters the franchisee by providing necessary guidance and training to ensure the success of the franchised unit. As time passes, the franchisee becomes self-sufficient; thus, the franchisor enables him a greater flexibility, assuming that he demonstrates the ability to operate the unit efficiently.
In any business, communication is crucial, and franchising is no exception. The franchisor set a tone for fluent communication with franchisees by using telephone instead of emails. Frequent communication denotes that franchisors are committed to the success of their franchisees, which is beneficial for both parties in the long run. A lack of communication hinders the progress of the franchise business.
Though franchisees are independent business owners, but they are always under obligation to operate as per the terms of the franchise agreement. The franchisor has to ensure that the franchisee is complying with the terms of the agreement. A franchise agreement covers all the essential factors, such as operating procedures, utilization of trademark, and marketing strategies. In case the franchisee breaches the agreement, the franchisor can then take necessary actions, as stated in the agreement, which may also include terminating the franchisee’s operating rights.
Even if the agreement defines the relationship between a franchisor and franchisee, some disputes may incur that require arbitration from higher legal authorities. Lawsuits determine whether the franchisees should be considered as employees instead of independent owners and extent of liability the franchisors have to bear for the actions of the franchisees.
Attributes of Successful Franchisees
Following are some qualities that a franchisee must incorporate in order to operate the franchised unit successfully:
- A franchisee must not be reluctant in nature. There should be an eagerness to meet specific requirements and thrive on making the franchised operating model nothing but a revenue-generating unit. Franchisees should contemplate on the marketing materials to use, suppliers to work with, and the products or services that can be offered to improve the productivity of franchise.
- In exchange for the licensing right, intellectual property, and readymade operating system, a franchisee should report his/her sales and expenses to the franchisor. Franchisees must follow the instructions on using the products & services. Additionally, he must comply with the advertising requirements of the franchisor. A franchisee shall follow the set protocols each week, month, and year. If the franchisee fails to meet the brand standards, it risks his position and breaches the franchise agreement.
- The success of a franchisee is measured each day based on the franchise’s performance. It requires more self-sufficiency than any other corporate managers have had. A well-structured franchised system can provide a level of support that contributes to the franchise’s success.
Also, Read our Article: Step by step procedure for Private Limited Company Registration
Why is it essential to get the Franchise Agreement checked by a legal consultant?
Franchisees often ponder if it is worth spending money on getting assistance from a legal expert to review a franchise agreement. The reasons listed below justify the need for a lawyer for the same:
- A franchisor ought to have numerous controls in the agreement to ensure the uniformity of operating system, protection of its brand, and quality of its products or services. However, such a contract shall be seen as one-sided, unfair for the franchisee. A legal expert can guide you if the franchisor has got the balance right.
- Franchise agreements specify the services a franchisee will get from the franchisor. A solicitor helps you give a better understanding of the extent to which a franchisor utilizes his power.
- Further, an affiliated solicitor can clarify the rights which you are getting under the agreement along with the obligations and performance targets that you are expected to attain. With professional guidance, you will be able to determine those clauses that otherwise could remain hidden. A lawyer will bring your focus on the circumstances in which the franchisor can terminate the agreement and any other legal obligations that you may have not noticed.
- A lawyer reviews the franchise agreements from a legal perspective and indicates unusual elements in the agreement (if any) that may require additional explanation from the franchisor’s side.
Once you apprehend your rights and obligations under the agreement, you can make a well-informed decision on whether to enter into the franchising or not. Therefore, It is of utmost importance to reach out to an affiliated solicitor who has expertise in reviewing the franchise agreement. A reliable option for you could be Swarit Advisors.
Key elements of a Franchise Agreement
Here are the salient components that should be there in all franchise agreements:
- Managerial Assistance– The agreement must demonstrate the operational practices that franchisees should follow. When doing business with a respectable & reliable franchise, the franchisee gets proper managerial assistance.
- Quality Control- Quality assurance is substantial for all types of goods. The agreement accentuates quality control measures that the franchisee should adopt.
- Higher Rate of Success-The success rate of franchised businesses is relatively more than that of other independent businesses. With the course of action already defined in agreement, the success becomes higher.
- Costs- The agreement gives complete information on costs involved in acquiring the franchise. It provides the fees and royalties for which the franchisee is responsible.
Franchise business creates opportunity for growth and expansion as the franchise unit operates in multiple locations. If you also have an urge to establish higher-level success in a short period, then opt to franchise. Take professional assistance from Swarit Advisors to frame the franchise agreement as we know the right way.
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