The Franchisor

Who are the Franchisor and the Franchisee?
The Franchisor is the person or company that owns the right to a business name and system whereas the Franchisee is the person who buys it and operates it. The franchisor sells the right to the business system for a sum of money and the franchisor would expect that the Franchisee would run the business according to the system laid out. The Franchisee generally has to pay the franchisor an ongoing payment called a royalty. A royalty is a percentage share of the turnover or profit share of the business.

Cautions for Franchisors
Here are some of the points that franchisors would have to be careful about:

  1. Do not make any promises to potential franchisees.

  2. Make sure you are clear in your discussions so that they record accurately what has been said.

  3. Stress to the franchisee that the success or failure would depend on their effort and also on their correct operation of the franchise.

  4. Documents and Disclosure for franchisees are recommended to enable existing franchises to make decisions.

  5. Advice. Make sure the franchisees receive their own independent advice before they sign the agreement.

  6. Agreement. Make sure the franchise agreement is relevant to the franchisee and to the type of business that you both understand

  7. Misrepresentation. Make sure that all adequate disclaimers are included in the documents so there are no arguments later on when you could be accused of misrepresentation.

  8. Use separate Disclosure documents if possible

  9. Encourage Franchisee to carry out their own independent enquiries

  10. Make sure that everything is in writing. If you make any promises or statements to the franchisee, confirm that in writing and include it as part of the documentation.

The Advantages for a Franchisor
The advantages to a franchisor include:

  • Fast expansion.

  • The operators are motivated because they own the business.

  • Number of outlets can be expanded quickly.

  • Capital – your capital commitment is reduced because the franchisee would be required to pay an upfront fee as well as the costs of setting up their outlet.

  • Less Management – you would find that your operation can be run tightly with a reduced number of managers involved.

  • Market – Because you have so many more people involved in the franchise and promoting the name and products around the country the business can acquire a strong market presence quickly.

  • Return – you would have a high return on your investment because you can concentrate all your resources into expanding the business rather than investing in additional outlets and plant etc.

  • Funds – you can raise more capital by selling off some or all of the existing outlets and entering into agreements regarding future operation of new outlets.