Your Business investigates the roles and responsibilities of franchisors and franchisees…
Franchising is a “business marriage” between an existing business (the franchisor) and the newcomer to business ownership (the franchisee). But who is responsible for what in this complex relationship?
Lindy Barbour, Managing Director of Franchize Directions describes the franchisor as the custodian of the franchise brand who takes care of the bigger picture for the entire network. “Franchisors have to keep an eye on market trends, brand positioning, research and development, training and operational best practices,” she explains.
A good franchisor doesn’t operate at arm’s length from franchisees. The fee income of the franchisor is typically a percentage of franchisee turnover and they are therefore both committed to driving franchisee turnover and profitability through sound ongoing support.
The role of the franchisor has moved from that of quality control inspector to more
of a business advisory role. Field service consultants representing the franchisor no longer arrive unannounced with checklists to complete. Instead there is a coordinated agenda tackling current issues, communicating upcoming initiatives and plans to boost the bottom line are agreed to and recorded. Franchisors who collect management accounts from their franchisees on a monthly basis are able to advise from an informed base and anticipate problem areas before the business comes under threat. With this information the franchisor can provide financial benchmarks for franchisees.
Franchisees on the other hand are “operational with a direct interface with the customer”. They execute the daily tasks according to the operational guidelines set out by the franchisors. “Franchisees concentrate on sales, exceptional customer service and execute the brand promise on ground level,” according to Barbour.
Franchisee and franchisor responsibilities are different because their core tasks in the business are different. In a franchised fast food chain for example the core business of the franchisee is fast food, the core business of the franchisor is franchising. The franchisee provides a quality product and customer service, the franchisor confidently offers third parties a sound long-term investment.
Barbour stresses that it is important to realise that the reality is that these parties are not operating on an equal plain. If you read any Franchise Agreement there is always a clear bias toward the franchisor. The franchisor has the final word when it comes to decisions affecting the brand and therefore the network as a whole.
Roles and responsibilities
While specific roles and responsibilities vary across franchise systems, the following seem to be the norm:
- The franchisor provides an established, tried-and-tested business system, which includes an established brand name and trademark.
- The franchisor benefits from the franchisees’ financial and management investment in terms of network growth with minimal capital investment. In return the franchisor offers training and ongoing support services for a management service fee. Training is typically arranged for both franchisee and key staff members and may involve theoretical classroom as well as practical on-the-job training.
- An operations manual, marketing and advertising support and assistance in setting up are typically included in the franchise package.
- Most franchisors assist franchisees in site selection and provide guidelines on the purchase of inventory and equipment.
- Franchisors may assist with negotiating group insurance and assist in recruiting key staff, however, this is not always the case.
- Franchisors operating as nominated suppliers can be a tricky one. However, this is negated if the supply relationship is competitive, transparent at all times and acts in the best interest of the franchise network.
- Franchisees get a blueprint on how to succeed in the chosen business system when investing in a franchise, which really is a proven business system with the supporting business package and established brand. It is their responsibility to market the brand locally, follow the operating guidelines and use the support systems to attract and retain customers.
- Other responsibilities include maintaining the franchisors standards, methods, techniques and marketing strategies.
- Investing in a franchise does not negate the entrepreneurial responsibilities of the franchisee. The performance of the business remains the responsibility of the franchisee, with the comfort of being in business for yourself but not by yourself.
A branded franchise system directed by sound leadership represented by well selected owner-operators is a sustainable business model.