Franchising is a popular way for people to operate a business without having to face the same risk and responsibilities of starting one from scratch. However, operating a franchise does come with challenges and obstacles that can jeopardize the business.
To minimize the risk of failure, franchisers typically provide various tools and solutions to franchisees.
- Business support-Franchisers can support franchisees by providing business models as well as guidance on employment matters, supplier relationships and technical support.
- Marketing and advertising guidelines-A franchiser will typically have guidelines for how franchisees appear to consumers in the interest of uniformity. Franchisers may control advertising strategies, employee attire, location color scheme, signage and branding.
- Training-Franchisers commonly provide training materials, also in the interest of uniformity. Ensuring all locations follow the same rules and use the same processes can be vital to the success of a franchise.
- Assistance in identifying a location-Franchisers often have at least some control over site selection and sales territories. They may not specifically select a location, but they usually retain the power to approve or deny proposed sites.
Why these provisions are critical
The franchise model depends on the franchiser providing the tools for a successful company to a franchisee in exchange for franchising fees. These tools should be confirmed in a contract so both parties know what to expect. Should a franchiser fail to provide these or other elements, a franchise could suffer and fail, despite the efforts of the franchisee.
It is also possible that a franchiser could face a lawsuit. Recently, for instance, a lawsuit was filed against Tim Hortons citing failure to approve franchise locations and new partners as well as failure to provide proper advertising and branding materials.
Whether you are a franchiser or a franchisee, it is important that you understand your obligations and permissions. Discussing these with an attorney can be a good way to protect yourself and your business.