Franchising is highly regulated – both franchisors and franchisees must comply with the relevant laws. Franchisees must also comply with the system itself.
Legal compliance
The Franchise Agreement and Franchising Code include details of everything the franchisee expects from franchisees. This could include:
- the products and services you’re allowed to provide
- fees and other costs
- where you have freedom to make your own decisions and where you need the franchisor’s written consent
When you sign the documents, you’re entering into a legal agreement to comply. It’s vital you read, understand and agree with all of the terms.
Operational compliance
Every franchisor should provide an operations manual that sets out the standards and procedures you’ll be expected to follow. This will set out how you are expected to operate in areas such as:
- customer service
- dealing with customer complaints
- ordering from approved suppliers
- marketing the brand.
If the franchise agreement stipulates that franchisees must follow the operations manual this document is also legally binding.
Good faith
The Franchising Code of Conduct includes the legal obligation to act in good faith by, for example, being honest, co-operative and respectful of each other’s interests. It applies equally to franchisors and franchisees.
Laws relating to business
Like all other business owners, franchisees must comply with certain laws. These cover areas such as:
- workplace health and safety
- food safety
- licensing
- privacy.
Complying with the system
A franchisor builds a brand and reputation based on a system that can be replicated by franchisees to provide a consistent experience in every location. In order to achieve this, each franchisee will be expected to comply with strict guidelines governing all aspects of the business.
- The look and feel.
This includes everything from décor and lighting to what you and the staff wear. - The product.
Customers should be able to find identical products and services at any brand outlet. - The customer experience.
Customers should also receive the same high level of service from well-trained, efficient and helpful staff.
In order to protect their brand, franchisors constantly check that franchisees are adhering to the guidelines. If you find the list of obligations daunting or too proscriptive, a franchise is probably not right for you. You should never enter a franchise with plans to make changes. If you don’t comply with the terms of your agreement the franchisor may be able to terminate the relationship.
“Remember that compliance isn’t just between you and the franchisor – the success of other franchisees is built on consistency across the brand,” says Greg Nathan, founder of the Franchise Relationships Institute. “Nothing will damage your relationship with the franchisor or other franchisees more than delivering a substandard service that tarnishes the reputation of the brand.”