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Things a Franchisee Needs to Know About Franchising IT Agreements

Regardless of the business you run or the industry you operate in, information technology will be an integral part of it.

This makes it crucial for prospective franchisees to understand what is involved in the franchising IT agreements. Almost every franchise business will have certain software as well as information Technology Systems that need to be acquired as part of the business.

In most cases, these IT systems and software are related to stock management, surveillance, security, payroll etc. It isn’t difficult for the IT agreements to be overlooked by the franchisee when they are acquiring a franchise. However, it is extremely vital for the franchisee to understand exactly what IT & Software are required. In some instances, these would have to be acquired from the franchisor, while at others, it may have to be acquired from a third party supplier who has been approved by the franchisor.

The terms and conditions mentioned in the IT agreement will determine aspects such as the ongoing supply, utilisation as well as maintenance of all of these systems. Since these arrangements have the potential to impact the day to day operations of your business, IT expenses can prove to be a major upfront & ongoing expense for your franchise.

Franchise IT Agreement – Some Facts

While there are different types of franchise agreements based on the types of businesses and systems used, there are some basic aspects it will contain such as:

• It will have terms requiring you to buy specific IT or software from your franchisor or the approved third-party. This would be covered by a separate agreement.
• The IT agreement would have to be provided at least 14 days before the agreement is to be signed.
• If the network requires you to acquire the systems and software from a third-party vendor, this would be based on the franchise agreement that is drawn for that vendor; this is referred to as third line forcing.
• It is important that you, as a franchisee check the provisions of your franchise agreement as well as the accompanying disclosure document very carefully. This is important in order to determine which IT & Software you need to acquire.
• Make it a point to request the franchisor to provide you a copy of the related IT agreement if they haven’t provided it to you already.

Basic Contents of The Franchise IT Agreement

Some of the basic things that you can expect to find in your franchise IT agreement include:

• Owner protections – Check the agreement for rules related to manipulating software, or utilizing these systems for purposes other than the franchise.
• IT Licence fees – Check whether the IT license fee is usage-based/a lump sum/periodic. In some networks, it could be per screen/per person. It’s also important that you check whether any specific upgrade fees apply.
• Support – Certain Information Technology firms offer ongoing support and maintenance of these systems as well as a specific level of system availability. As the franchisee, you need to check whether the credit process and metrics are easy to understand and work with.

In addition to all these things, you should ensure what the handback rules are at the end-of-term. Checking all these aspects of the franchisee IT agreement is one of the best ways to keep your bases covered when you are considering to purchase a franchise business.

If you want to know anything more about setting up a franchise business or want some sound and professional advice, call The Franchise Institute 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