Open communication between the franchisor and the franchisee is essential to setting a franchise up for success. After signing franchise agreements, you must overcome business challenges together. Fulfilling your respective responsibilities is crucial in facing market changes, economic shifts and personal circumstances that may affect the franchise system.
The specifics of these obligations may vary depending on your business model and the franchise agreement. But, some things are foundational, such as support from the franchisor and payments by the franchisee.
While franchisors must comply with federal franchise laws, Florida does not require them to register their Franchise Disclosure Document. So, both parties must read the fine print to ensure no misrepresentation in their legal relationship. This legal requirement can help you avoid or mediate future disputes.
The role of the franchisor
A franchisor must provide the franchisee with more than just a business license. Allowing someone to use your business model means giving access to the brand, products, services and processes. Fulfilling this involves:
- Allowing the franchisee to sell products and services under the brand
- Conducting initial training on the business model
- Offering continuous training and support during the term period
- Providing access to helpful tools and systems
- Providing information on vetted vendors and suppliers
In return, the franchisor gains a larger market share and expands.
The role of the franchisee
The franchisee usually buys a franchise for its brand recognition and business model. In exchange for running their own business under the brand, a franchisee must:
- Learn about the franchisor’s business
- Pay fees to the franchisor, such as royalty fees and a percentage of sales
- Cover the costs to set up and run the business
- Follow the franchisor’s business model closely
- Adhere to brand standards and protect the brand reputation
- Offer approved products and services only
- Develop the franchise in the location
- Advertise and market the franchise in the area
The disclosure document defines each side’s obligations and can identify a breach that could terminate the deal.
Opening a franchise, even a small one, typically takes months. Leases can span years. And, as with any business, investment and potential earnings are on the line. It is essential to start on the right foot.
It’s advisable to consult an experienced franchise lawyer to help establish trust. They can ensure both parties comply with legal requirements and check other factors affecting the business.
