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Do You Need To Look at Your Franchising Agreement After Signing It?

It’s very common to hear experienced franchisors say that while the franchise relationship finally relies on the detailed information about the obligations and rights mentioned in the franchising agreement, the document itself isn’t really referred to again, after both the parties have signed on the dotted lines.

In short, the understanding is that both the parties tend to develop a certain amount of respect and trust about each other; and they don’t feel the need to reassess any legal rights with reference to the other.

From the franchisees’ viewpoint, perusing the agreement is nothing but a fruitless exercise; because it is generally more favourable to the franchisor; that is the only way the company is able to protect the network’s integrity.

Mistakes franchisors make

Most start-up franchisors fail to understand exactly how complex this business relationship is; and they tend to make mistakes that they end up regretting down the line, such as:

• Putting together the franchise agreement even before the business has been properly tested across multiple outlets; they aren’t aware of the different T&Cs they would have to impose on the franchisees.
• Getting the franchising agreement drawn up by the family lawyer; this professional doesn’t specialise in franchising. In some cases, prospective franchisors scour the Internet and draw out the document themselves, which proves to be an even bigger mistake.
• The next mistake occurs in the recruitment phase; since there aren’t any properly-defined eligibility criteria, the franchisor ends up recruiting people that aren’t suited to the franchise.
• Franchisors sometimes make a one-off alteration to the agreement; they do this to attract new franchises, which results in inconsistency in obligations across the network.

If the network is a small one, this problem gets aggravated as the franchisor may become friends with franchisees that came on board at the outset. Sometimes these people seek (or the franchisor himself offers) extra concessions; they do this by overstepping certain segments of the franchising agreement.

Note: The cornerstone of any franchise relationship is the actual business. Aspects such as courtesy and friendliness are a value-add to the business relationship; they should never shake the boat and compromise the business working.

The relative performance aspect

The other major risk to the level of relationship between the two parties in a franchising business is the relative performance of the other’s business. A franchisee who runs a thriving business, may not give credit to the franchisor, for their success. However, they would rarely be critical of the franchisor in public. In comparison, an unsuccessful franchise will be quick to point a finger at the franchisor. They may also blame an inadequate or poorly-designed business model for their inability to turn the franchise into a success.

However, the contribution of the franchisees within the network has a significant role to play in the franchisor’s success. If the latter’s business falters, the franchisor may have to take some action against the erring franchisees. In some cases, these could be just warnings, while in others, the underperforming franchisee may be asked to terminate the contract.

Revisiting the franchise agreement

The franchisor and franchisee have a symbiotic relationship and the franchising agreement is the very foundation on which this business relationship stands. This is why it’s important that the agreement be drawn with care and enforced from the start. There could be situations in which both the parties may have to revisit the agreement, even in times when the sailing is smooth.

If you want to know more about setting up franchise business or want some advice, feel free to get in touch with us at The Franchise Institute. You can call us on 1300 855 435 or fill in this contact us form and we’ll reply as soon as we can.

Thanks for reading,
The Franchise Institute Team
1300 855 435