Features and Foundation of Franchising Engagement

Features and Foundation of Franchising Engagement

Support has always been a standard “best practice” and fundamental principle in franchising, but now it seems that support can’t be provided effectively without engagement. What does engagement mean and how crucial is it in franchising? If you’re a prospective franchisee, you should consult a franchise attorney for more insights on the critical aspects of a franchise.

Standard practice dictates that prospective franchise buyers or investors should contact a franchise attorney before committing themselves, even when a deal appears mouth-watering. A franchise attorney can provide legal guidance when establishing a franchise. He/she will help the partners draft a fair and just franchise agreement, and one that addresses critical aspects of franchising, such as dispute resolution, royalty sharing, compliance issues, and much more.

Features of Franchising Engagement It’s difficult to find the exact meaning of engagement in relation to franchising from the dictionary, but if you’re keen, you will agree with me that franchising engagement involves the following:

1. Marriage Agreement Franchising is a business relationship involving two parties, franchisor and franchisee, just in marriage relationships. Physical marriages involve being dedicated to each other, vowing to respect the union, supporting each other, and abiding with the typical rules, regulations, and terms & conditions of a marriage. Likewise, franchising involves adopting an appropriate mode of operation through signing a franchise agreement, supporting the franchising, and working towards achieving a common goal.

2. Commitment The franchisor and franchisee must commit to interact for mutual benefit and thriving of the business. The two parties should make common plans–considering the interests of each other, involve each other in critical affairs of the business, and be present even when the going becomes tough (like when disputes arise).

3. Temporary Relations Franchising relationships are not permanent, they run for a pre-agreed period stated in the franchise agreement. A franchisee cannot terminate the contract but they can transfer their interest to an interested third party or wait for the expiry of the active term. Terminating a franchise agreement without following legal procedures is considered breach of contract and the franchisor can sue the franchisee for liquidated damages.

4. Mutually Beneficial The relationship between a franchisor and franchisee should be mutually beneficial, and that’s why prospective franchise buyers are advised to contact a franchise attorney to avoid exploitation or being taken advantage of. A franchise attorney will help draft a fair franchise agreement and can advise the partners, particularly the franchisee, when an agreement appears to favor the franchisor

5. Founded on Franchising Law Franchising agreements can be likened to the constitution of franchising and it should be drafted in adherence to franchising law. It addresses a wide range of franchising aspects and regulates the relationship between the business partners. Some of the issues addressed by a franchise agreement include but is not limited to the following: • • • • • • •

Property ownership.

Franchise fee.

Royalties sharing.

Duties and responsibilities of each partner.

Dispute resolution.

Mode of operation.

Rights and restrictions.

Foundation of Thriving Franchise Relationships There needs to be a conducive environment for franchise relations to thrive. A thriving franchise relationship should be based on: • • • • •

Two-way communication.

Constructive, honest, mutual, and transparency.

Mutual benefits.

Alignment to company goals and culture.

On-going support.

Types of Franchises There are different types of franchises across a host of niches, and they are categorized differently with consideration to various factors, including amount invested, mode of operation, marketing strategies, and much more.

Job Franchise Job franchises are typically low-investment franchises, and they’re usually home-based. They don’t require significant human capital. In fact, they can thrive with even less than five employees. Initial capital is affordable to most people as it’s usually low. Job franchises are ideal for the following businesses:

• • • •

Mobile phone repair businesses.

Sanitary businesses.

Entertainment businesses.

Product Franchise

Product franchises, also called a distribution franchises and they gain strategic advantage by using or adopting the name or trademark, products, systems, strategies (operation & marketing) of the parent company. The franchisee is allow to manufacture products and are best for fast-moving commodity–FMCG, such as: • •

Automobile and spare parts businesses.

Large machinery manufacturers.

Business Formats Franchisors controls all aspects of the business, including operation, systems, and marketing strategies. Additionally, the franchisor is task with formulating a business plan, training the franchisee, and providing on-going support to franchisees.

Investment Franchise Investment franchises are best for businesses that require significant initial investment or capital. Franchisees automatically become key players since they invest significant amounts, to acquire certain rights, such as recommending the management team, operation & marketing strategies, and procedural guidelines.

Conversion Franchise An existing franchisee merges with a new company to form a new business outfit; it’s also call a hybrid franchise. The new company (conversion franchise) adopts the good features of the business to facilitate faster growth of the new company.

Never commit yourself before consulting a franchise attorney if you’re a prospective franchisee because franchise agreements can be deceiving and one-sided.

Avoid get-rich-quick temptations As stated earlier, franchises can be rewarding. In fact, investing in a franchise is one of the most lucrative ventures. However, you can be easily be tempted to earn more by engaging in malpractices, such as wrongful disclosures to win investors’ confidence, which can impact the business and your reputation badly if they come to discover.

Business relationship in a franchises should be mutual, and none of the two parties should exploit the other or have comparative advantage. A franchise lawyer ensures the business interests of each party are safeguarded for smooth operation.

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