franchising

franchise agreement

A key factor to promote and enhance a win/win situation and to protect the respective rights of the parties and the entire franchise operation is a competent written Franchise Agreement. It is essential that this agreement properly identifies and protects all aspects of the franchisors intellectual property and rights and that these are properly licensed to the franchisee. The contract must also focus on and accommodate the needs and requirements of the specific franchise operation and control the relationship between the two parties in a positive and constructive manner. As a result the agreements are complex and it is certainly advisable to consult an attorney with experience in franchising.

disclosure document

1. Nature And Purpose
• The Disclosure Document must be furnished to a prospective franchisee prior to the signature of the Franchise Agreement.
  
  It should set out salient features, characteristics and details of the franchise operation.
  
  Its primary purpose is to ensure that the prospective franchisee receives sound and adequate information so as to place him in a position where he is able to properly assess the franchise operation and make an informed decision whether to enter into the Franchise Agreement or not.
  
  
2. Content
   
   A Disclosure Document should include the following:
   
   

   1. The name, address and contact details of the Franchisor and of the contact persons at the Franchisor.

   2. The names and details of shareholders and senior employees at the Franchisor.

   3. The background, history, development and structure of the Franchisor.

   4. A description of the main services and products of the Franchisor, as well as important success factors.

   5. Details of the Franchisor’s initial and ongoing support and training.

   6. Outline or list of contents of the Procedural Manual.

   7. Total investment required including a breakdown thereof setting out, where relevant, the franchise royalty and administration fees and costs, as well as details of initial working capital required.

   8. A short feasibility study.

   9. Name, address and contact details of other Franchisees.

   10. Details of any past and present financial difficulties of Franchisor and Franchisees.

   11. Full details, requisites, equipment, layout and proposed sites for an average franchise outlet.

   12. A summary of the Franchise Agreement.

3. Benefits To The Franchisor:
   
   • A well presented Disclosure document can be utilised to promote and enhance the image and reputation of the Franchisor and to “sell” the franchise package.
   • A comprehensive Disclosure document will also minimise the likelihood of a Franchisee attempting to cancel the agreement or evade his obligations on the basis that not all material and relevant information regarding the Franchisor and Franchisee package and business was given to him.
     
     
4. Benefits To The Franchisee:
   
   • The Franchisee is placed in possession of all the material and essential details of the Franchisor and the Franchisee operation he wishes to purchase.
   • He is therefore able to, as mentioned above, assess the background and nature of the business he is purchasing, the viability thereof and of the commitment and costs required to make it a success.

Operations Manual:

This is an annexure to the Franchise Agreement.

Avoid cluttering up the Franchise Agreement with details regarding the background, philosophy, procedures, management and methodology of the business.

Together with the Franchising Agreement and the Disclosure Document, the Operations and Procedures Manual are the three most important documents in a franchise operation.

This document sets out the detailed business blue print to guide and indicate to the franchisee precisely how the business should be managed and how it should operate.

This document forms the basis of the franchise and without it franchisees and the entire franchise operation will be at a substantial disadvantage.

It is a complete manual and business guide and should set out in detail the precise procedures and methodologies of all aspects of the nature and management of the business including the philosophy, business definition and mission of the business, the structure, the code of employment and staff policies, training of all persons, financial arrangements and controls, quality control, dress, design and décor.

In essence a comprehensive manual should furnish sufficient detail in practical and constructive terms, for a completely inexperienced franchisee to successfully run a franchise outlet independently with the minimum of difficulties.