A good relationship between the franchisor and franchisee is significant for the success of both parties.
The whole notion of franchising involves various steps in order to carry out the process. One by one we will answer the questions asked above. The major milestones that need to be done in order to franchise the business and how to franchise are listed as below.
1. Appropriate and Strategic Business Planning
After the decision of franchising is made and finalized, the first step must be the future planning for the business and devising the strategies. Evaluating the business to see whether it’s ready is what needs to be done. In order to meet the goal, a franchiser should work out a business plan along with the strategy and the required growth that needs to be achieved in future by the company. The time period for this must be at least five years. Capabilities need to be discovered in order to make the strategy functional. Therefore, these capabilities and requirements should be present in the previously functioning organization structure.
2. Operations Manual and Training Sessions
The making of operations manual of the franchise is a vital step for franchising as it will help in determining the quality control and success of the franchise. Operations manual is actually the tool which will serve the purpose of satisfying the target market that the organization is fully capable of efficiently dealing with the expansion through franchise.
In addition a franchisor should also devise different training programs to equip the franchisees and his/her employees with efficient skills to make this franchising business a complete hit. Informational sessions and computer-based equipments have been proved to be very valuable. Training videos can also be used as effective tools for training the staff.
3. Legal Documents
In order to sell franchises to different franchisees, one needs to be legally entitled to do it. In order to do so certain documents need to be prepared and to be submitted to the relevant governing body. The documents include a franchise agreement document and a Franchise Disclosure Document (FDD). These documents need to be filed with the appropriate state official authorities. Maintenance of compliance is also necessary which can be achieved by regularly documenting the compliance with state and federal authorities on regular basis. These legal requirements seem easy to be fulfilled but one things needs to be kept in mind that without this step no franchising can take place and the franchisor can never be able to attain legal entitlement to sell franchises. A good relationship between the franchisor and franchisee is significant for the success of both parties. Since franchising sets up a business
relationship for years, the groundwork must be carefully erected by having a clear understanding of the franchising process. The franchisee is certified to use and advertise goods or services under the franchisor’s logo, brand name, trademarks and trade names for a specific time period mutually decided by both the parties. Franchising is governed by federal and state laws that entail franchisors to provide potential franchisees with information that describes both parties relationship.
Here is the legal checklist before entering into the franchising process:
a. Franchise Agreement
A franchise agreement is a legal, binding contract between a franchisor and franchisee, enforced in Pakistan at the state level. A franchise agreement contents can vary depending upon the franchise system and nature of business.
A typical franchise agreement contains the provisions and obligations in the following areas:
- Business Operations
- Operating Manuals
- Marketing Policies
- Trademarks, Patents and Copyrights
- Service Fee
- Cancellation or Alteration
A franchise disclosure document is a legal document which is offered to potential buyers of franchises in the pre-sale disclosure process. The Franchise Rule states franchise disclosure compliance obligations as to who must be the one to organize the disclosures, who must furnish them to potential franchisees, how franchisees receive the disclosures, and how long franchisees must have to review the disclosures and any revisions to the standard franchise agreement. It contains background information, any bankruptcy history, initial franchise fee, service fee. training fee, royalties, litigation history, principal obligations, trademarks, logos, patents. copyrights, role of franchisee, role of franchisor and termination. There is no hard and fast rule while developing franchise agreement and disclosure statement; it depends upon the parties involved in the agreement and the nature of business being franchised.
c. Operating Manual
The operating manual is a document contains the business model of the franchise and outlines the day to day activities of the business. It provides details the guiding principles that the franchisee must legally follow in operating the business as outlined by the franchisor. From time to time amendments may be made and the franchisee must be equipped to regulate operations accordingly. The franchisee needs to be aware that the contents of the document are confidential.
d. Terms & Conditions
As there is no specific legislation or regulation for franchising, but this agreement is a critical document and should be carefully reviewed by a lawyer before it is signed, a franchisee and franchisor should remember the following:
- Initial Term, How long?
- Right to renew?
- Exclusive or non-exclusive?
- .Supply of goods and services
- How training would be conducted by the franchisor?
- Responsibility of marketing and advertising or promotions
- Assistance provided by franchisor
- Performance measurement of franchisee
e. Intellectual Property Rights
It consists of
- Goodwill Logos
- Business model
4. Franchise Marketing Plan & Tools
The franchising company must have proper and state of the art marketing plans in order to make this franchising business an absolute winner. Having a specific, clear and efficient marketing plan should be on the checklist. This step will help in getting hold of the potential buyers of the franchise. The marketing plan must convey the franchisor’s clear aim and message to the targeted buyers of the franchise. The second step involves the availability of marketing tools so that the marketing plan can be publicized in order to sell the franchises the targeted franchise prospects. Brochures, flyers, posters can be used. These could be mailed directly to the targeted prospects by launching a campaign or can be distributed to the participants of different events and trade shows.
5. Franchise Sales Training
Franchisor needs to know the issues involved in the whole sales process of franchising along with the procedural issues in the legal documentation. In terms of legal documents, the franchisor needs to keep in mind that he can plan and develop all the tools in less than 90 days but that does not dictate that his franchising business can be launched after that period as the legal documentation can actually take much longer than that. That being said, a franchisor needs to prepare himself for the fact that his franchising business can actually take a time span of almost a year to get a legal status. So, he needs to plan by keeping this fact in mind. He should also anticipate the costs of this program not for three months but for a time span of six months to a year.