Understanding the Franchise Relationship

A mutually beneficial franchise relationship in which the franchisor’s and franchisees’ roles are clearly defined is the basis for a functional franchise system. Franchisors who do not invest much effort into determining the parameters for this relationship and making it work will be filled with regrets later. The most important thing to remember about your franchise relationship is that it is a business relationship. It is not a friendship between equals. The reason why you and your franchisees have contracts detailing your respective responsibilities within the franchise system is to ensure that you all live up to those responsibilities. This makes for the effective operation of your franchise system.

 

The Hierarchies in the Franchise Relationship

 

Because the franchise system is built on your original business ideas, and because, in the process of franchising your business, your role shifts into an executive one, it is important for your relationship with your franchisees to reflect this hierarchy. It is your role to set the direction for the franchise company’s development. By the time your franchisees sign on for their positions, the terms are set in stone for the most part. They may suggest minor adjustments, but you are not under any obligation to keep on negotiating the details of the contract until they feel pleased with them. Most of the accommodation has to come from their side. If they sign the franchise agreement, they have to be willing to live with the terms of that agreement. This underlines the importance of the franchisor and franchisee hashing out the details of the documents governing the franchise relationship before they sign them. That’s the only way to determine that they are, in fact, a good fit for each other.

A good franchisor will clearly lay out his or her expectations and give the franchisees detailed guidelines to follow as they operate their franchises. At the same time, the franchisor or his or her representative should be accessible to the franchisees. They should be able to express their concerns if they have any. Furthermore, if their concerns turn out to be legitimate, it is important to address them. Ignoring one’s franchisees’ reasonable requests is out of the question. The franchisees could have ideas that improve the efficiency of the system, and any improvements to the system benefit everybody, including the franchisor, at the end of the day. Additionally, it is important for all the parties in a franchise relationship to feel that their contributions matter and that their opinions are valued.

Franchisor vs. Franchisee – Should it really be a this way?

All fresh franchisors start with optimism and faith. They believe the relationships they are going to establish with their franchisees will be perfect. They are confident that whatever troubles will arise, will be quickly addressed and resolved in the best possible manner. I doubt there is a franchise business owner who pictures poor communication between franchisees and franchise management and units closed after court fights.

On daylight things start to look different. Many franchisors soon realize they are unable to serve their franchisees the way they have originally planned. When the franchisee number starts to grow, things just take a turn into the worst. Now franchisors need to work with much more people, solve much more problems and be more flexible. And let’s face it – not everyone is up to this challenge. Many find themselves stuck into a vicious cycle of problems; they cannot stop their growing business and they cannot solve the issues that are piling.
Luckily there are several easy steps that every franchisor can take to reduce the chance of finding themselves into the above scenario.

How to solve problems before they have occurred?

• Be firm but fair. Once you set the basic foundations of your franchise business, stick to them. You will be exited when the first potential franchisee knocks on your doom and you may be tempted to do some tweaks on the operational manual or to adjust your fees just to make sure you will land the sale. Ask yourself – could you do so if you had 100 franchisees? Could you reduce your fees or royalty payments every time you want to land a sale? The answer is no, you cannot, because your business will fail. You must take into consideration the specifics of each sale but your decisions must be economically and not emotionally driven.
• Communicate. Every successful relationship between a franchisor and their franchisee is based on good communication. You may find it difficult to keep up with this once your franchisee number increase, and this is why you can set some standard procedures that anyone working for you can follow. Other times you may not want to communicate as the relationship with one of your franchisees has started on the wrong foot. Whatever the case you must try to make things work and you are the one who should initiate the communication process.
• Be patient. Sometimes it may seem that a franchise unit you have just sold is not performing according to your expectations. Instead of reaching out to call your attorney, stop and check if your impressions are really true. Review the franchisee balance sheets and meet the owner. May be you will really find a reason to worry or maybe you are just being impatient and unrealistic. Set a system (if you do not have it in place already) that will automatically alarm your financial department if the things are not going according to plan with any of your franchisees.