The Difference Between Franchisor and Franchisee Obligations

If you’re interested in launching or joining a franchise, you probably have a vague idea of the role of a franchisor and a franchisee. But failing to carry out all your responsibilities once you’ve signed on the dotted line could have disastrous consequences - both for you and the franchise. So, let’s run through the key franchisor and franchisee obligations.

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The franchise agreement is a legally binding document, and holds the franchisor and franchisee responsible for specific tasks. From day one, both parties must understand and uphold the standards laid out in the contract; failing to do so could derail the unit and even damage the entire network.

Franchisor obligations vs franchisee obligations

Fees

Franchisee obligations

Before a franchisee invests in a company, they must make sure they can afford all the separate fees and launch costs, as well as working capital. Being undercapitalised is the biggest reason for franchisee failure, so having a full understanding of all the relevant expenses is essential if the business is to succeed.

Franchisor obligations

During the recruitment process, the franchisor must inform franchisees of all the costs associated with the franchise model.

Also, it’s important franchisors don’t make a profit from the initial franchise fee; this payment should just be used to cover their franchisee recruitment and training costs. If they’re tempted to take a share of the fee, they might end up installing more franchisees before supporting the ones they’ve already got.

Operations manual

Franchisee obligations

Here’s where the majority of franchisee obligations lie: business owners within a franchise must follow the rules and regulations set out in the operations manual. The franchisor will have spent years refining a strong business model and strategies, and they’ll know how to build a successful business under the brand. If franchisees stray from the rules, the network’s branches may start to operate inconsistently, which could damage the reputation of the franchise as a whole.

Franchisor obligations

The franchisor must create an operations manual detailing all the information franchisees need to operate their business units. This document should clearly and concisely explain how to develop a business under the brand and, ideally, investors should have access to both paper and electronic copies.

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>> Read more:

• Top 10 Questions to Ask Franchisors When Evaluating a Franchise Opportunity
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• Franchisors and Franchisees: Know Your Obligations From Day One
• Why it’s Important for Franchisors to Visit Franchisees.
• How to develop an effective relationship with your franchisor
• What support do franchises offer?
• What do franchisors look for in a franchisee?

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Training

Franchisee obligations

Although franchise agreements specify the franchisor’s obligation to provide training, they are often fairly vague in describing the content or quality of the induction scheme. As a result, the onus is on the franchisee to make sure the training package meets their expectations and provides everything they need to be able to launch and operate a franchise unit effectively.

Often, it also falls to the franchisee to pay for travel and accommodation during the training period. And once they’re at the training site, they should be prepared to put in the effort to learn and develop their skills.

Franchisor obligations

One of the main reasons people choose to join a franchise rather than launch an independent business is the opportunity to access a comprehensive training scheme. So, franchisors should be dedicated to giving franchisees the confidence they need to become an entrepreneur, as well as the know-how to run a business under their specific brand model.

There’s no ‘right’ way to train a franchisee when it comes to the content or format of the coaching. It just has to be relevant for the franchise and the investor’s future role within it. For managerial or administrative companies, the training may be purely classroom-based, whereas for hands-on roles, on-the-job coaching and shadowing could be more appropriate.

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>> Read more:

• 5 Qualities of a Successful Franchisor
• 5 Reasons Why A Strong Franchisor-Franchisee Relationship Is So Important
• 5 Ways to Keep on Learning as a Franchisor
• Franchisor Tips: 6 Mistakes to Avoid When Running a Franchise Network
• What It Really Means To Be a Franchisor
• Ten Ways to Be the Best Franchisor a Franchisee Could Wish For
• Why it’s Important for Franchisors to Visit Franchisees.

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Support

Franchisee obligations

As with the training, franchisees should make sure they’re happy with the level of support they’ll receive throughout their franchise journey. Of course, they’re also obligated to accept the guidance provided and run their business in line with the rules set out in the franchise agreement.

Franchisor obligations

The franchisor’s obligations don’t end as soon as the franchisee has completed their training. Although the initial induction scheme and operations manual should help the franchisee run their business effectively, ongoing support can also be extremely helpful.

Franchisors should be there for their franchisees, whether they need support with a specific problem, or would simply benefit from professional development opportunities. Franchisors could also provide guidance in areas they may not have touched upon in the initial training scheme, such as marketing, staff recruitment and onboarding.

Marketing

Franchisee obligations

In some companies, the franchisor may ask franchisees to contribute to a marketing fund for the brand-wide promotional activity they do. Although this monthly marketing fee doesn’t apply to every investor, it’s an important franchisee obligation in some companies. If the national advertising campaigns are of a high-quality - and therefore beneficial for each individual business unit - franchisees should have no reason to begrudge the fee.

Another important franchisee obligation is to launch local marketing campaigns. Each investor should take steps to complement the franchisor’s wider promotional activity.

Franchisor obligations

Franchisees buy into a recognisable brand name, so franchisors must make sure it upholds its positive reputation and high level of customer awareness at all times. In most cases, the franchisor should carry out regional or national marketing schemes on some level, to support the promotional activity completed by individual franchisees.

More guidance on becoming a successful franchisee or franchisor

Before signing a franchise agreement, it’s vital both the franchisor and prospective franchisee understand their future obligations. Once the contract is signed, it’s difficult to change or terminate it.

Although the franchising process might seem daunting, the foundations are fairly simple. The franchisor must provide high-quality guidance and support, while the franchisee adheres to the business model and pays any fees they owe.

You can find more franchisor and franchisee tips right here at Point Franchise; visit our article catalogue or use the search box to discover guides on specific topics.