Skip to 0 minutes and 9 secondsFranchisors have two businesses. One is the business of being a franchisor, supporting the franchisees, and building the brand. The other is the business that the franchisees will replicate as independent traders under the franchisor's brand and their guidance. The two key mechanisms used by franchisors to guide franchisees on how to run their business are operating manuals and franchise agreements.
Skip to 0 minutes and 41 secondsA good starting point is to document every single aspect of the current business. This includes how the business manages employees, customers, and suppliers as well as locations and landlords. The franchisor needs to create templates for all paperwork such as invoices, quotes, orders, and daily job sheets. Sample documents include confidentiality agreements with clients, tenders for work, and wage records. To protect the brand, franchisees will need to follow strict brand guidelines. Franchisors should consider developing a code of ethics that everyone working under the brand adheres to. There will be policies around communications and internet usage as well as advertising strategies and so on. All of this information is captured in the operating manual.
Skip to 1 minute and 35 secondsThe purpose of the operating manual is to enable a franchisee to duplicate and run that independent business trading under the franchisor's brand and adhering to the franchisor's vision. Before proceeding to draft documents for foreign expansion, a domestic franchise agreement needs to be prepared.
Skip to 1 minute and 59 secondsA domestic franchise agreement sets out the legal obligations of the franchisor and franchisee towards each other. Like every type of business contract, a franchise agreement has an accepted structure. There's normally an introductory section that states that the franchisor has the right to use the brand and has built up a reputation and confirms that the franchisee wishes to buy a licence to trade as a franchisee. Next is a set of definitions of terms used throughout the agreement. And this may also refer to the legislation or external documents that are important for the parties to obey. There is a statement that the franchisor grants rights to the franchisee. These rights will be to a non-exclusive or exclusive territory.
Skip to 2 minutes and 50 secondsWhere franchisors do not grant territories you would expect them to only locate new franchisees where they would not destroy the business of an adjacent franchisee. We will return to this concept when we're discussing competition laws in module 3 and again in module 5 when we discuss disputes. The franchisor also needs to consider how it will handle online sales by itself and by franchisees. The fourth element is the franchisor's obligations. These would typically be very few and relate to providing the operations manual and initial training and maintaining the intellectual property.
Skip to 3 minutes and 32 secondsThe next and major element is the franchisee's many obligations relating to money, standards, reporting requirements, advertising commitments, role in using and reporting misuse of intellectual property requirements on transfer of the franchisee's business, termination provisions, restrictive covenants, provisions of guarantees, insurance. The final four elements of the franchise agreement are mutual obligations, boilerplate provisions, signatures, and guarantee and indemnity provisions. In the expert video, Paul Jones gives us useful insights into signatures in China. International franchise agreements are covered in the next module. Now would be a good time to look at the franchise law for your country to see whether a disclosure document is required.
Skip to 4 minutes and 27 secondsIf you do discover that a franchisor needs to prepare a disclosure document, the next thing to find out is whether it needs to be registered.
The Operations Manual and the Domestic Franchise Agreement
Franchisors have two businesses. One is the business of being a franchisor - supporting the franchisees and building the brand. The other is the business that the franchisees will replicate as an independent trader under the franchisor’s brand and guidance.
The two key mechanisms used by franchisors to guide franchisees on how to run their business are operating manuals and franchise agreements.
This video will discuss the key considerations and process of creating these important documents.
Following completion of this step’s activities it would be a good time to look at the franchise legislation in your home country or state to see whether a disclosure document is required. If you do discover that the franchisor needs to prepare a disclosure document - the next thing to find out is whether it needs to be registered.
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