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Understanding the Franchisor and Franchisee Relationship

30 August 2012

A ‘franchise relation’ is the term used to describe the current relationship state between a franchisor and franchisee. Like any relationship, a positive franchise relation is based on mutual respect and trust, commitment to a common goal, understanding expectations and the right culture fit.

Franchise relations are legally binding. Many of the rules and boundaries for operating the business are established by the franchisor and written down in a contract for both parties to understand and follow.

As a first-time franchisee, a contract is great because it clearly outlines what the franchisor expects from the business venture, as well as the rights and obligations of both parties. You also have ample time to review the contract and seek professional legal and accounting advice before you commit to signing any dotted lines.

Franchisor role

As a senior partner, a franchisor will teach the franchisee how to operate the business according to the rules and practices outlined in the contract. Many provide ongoing support, coaching and the tools needed to assist with growing the business. However, a franchisor is not a parent and cannot take the fall for a franchisee's mistakes. Still, they will do their best to help set the franchisee up for success.

Franchisee role

By making the decision to buy a franchise business, a franchisee is voluntarily agreeing to operate the new venture according to the franchisor's terms. However, franchisees are independent businesspeople. They're responsible for their own business activities and have significant control in regards to how they execute the franchisor's system. Therefore, they're accountable for the success or failure of the business.

What to look for in a franchise business

  • Culture: Beyond the products and services offered by a franchisor is the business's culture. Beliefs, values, ethics and purposes that are perfectly aligned are foundations for a long-term successful franchise. Does the potential franchisor's culture align with your set?
  • Communication: Honest and regular communication is vital. Look for a franchisor who stays in touch with their franchisees. Do they frequently monitor franchisee businesses via meetings, visits, conference calls, surveys and field reps? Are they available and willing to listen to your concerns/ideas/challenges?
  • Term length: Your franchise term is based on a defined period of time. The contract may be as short as one year, but on average is between three and five, according to the Franchise Council of Australia (FCA). Can you commit to this time frame? What rights do you have if you want to end the franchise agreement early?
  • FCA Code of Conduct: Franchisors who are members of the FCA are expected to follow the Code of Conduct. Buying a franchise that is registered with the FCA provides protection, as it's a sign that the franchisor is committed to adhering to best-practice levels.

Learn more about franchising with the Franchising and Business Opportunities Expo here.