If you want to start a business without worrying as much, then opening a franchise business may be the solution since, as a franchisee, you do not have to go through many of the growing pains that small business owners usually go through. However, this does not mean that it will always be a smooth sailing business, as there are some unique legal issues that a franchisor may face if they are not entirely aware of their responsibilities as a franchisor.
Having a franchise means the business owner (franchisee) does not need to start from scratch. Instead, the franchisee can begin with the brand with name recognition and gain considerable customer loyalty. In exchange for these, however, the franchisee must pay the franchising fee and possibly the royalty fee, which will be collected weekly or monthly.
The amount you pay to use the business’s name may be worth the risk, particularly if you choose a widely recognized brand. However, keep in mind that starting a franchise may not be for everyone since there may be legal issues involved. Here are some legal challenges encountered in franchising.
- Failure to provide a clear, standard franchise agreement. This is an essential matter wherein the franchisee should be able to read the contract thoroughly and ask questions to the franchisor before finally signing the agreement. The franchisor must create a strong and reliable system and indicate the regulations regarding the operations of all franchisees, including activity restrictions. Strict adherence to these policies should be implemented and followed accordingly. The franchisor should clearly state the do’s and don’ts to prevent jeopardizing the whole system, which may result in the collapse of the business.
Along with the agreement, the franchisor should provide an updated franchisee manual with clear operational methods that would set as a guide to adhere to the standards of the franchise business.
- Lack of support from the franchisor. The franchise agreement should always include providing support to the franchisee. All franchisees expect a certain level of support, particularly when starting their business. However, in some cases, the franchisor’s eagerness to provide support slowly declines as soon as the franchisor has received the franchise fee. The franchisor can face some legal issues with this. Therefore, it is always wise to research which brand to choose and take time to talk to existing franchisees regarding their relationship with the franchisor.
- An uncontrolled number of franchisees. While business expansion is the main reason a business owner has opted to open their business for the franchise, this does not mean they would just accept every franchise applicant. What happens when franchise locations are too close to one another? The sale is divided and is likely not to hit the monthly quota. This is not good for the business. Again, included in the franchise agreement, the franchisor should indicate how many franchisees can only be set up in a given area.
- Customer objections to unfair commercial practices or defects in goods. The franchisees do not have their suppliers to provide everything they need for their business. They place their orders through the franchisor’s office, and the franchisor will be the one to talk to the suppliers and deliver the goods to each franchisee. When a franchisor fails to thoroughly check the quality of the goods provided and reaches the franchisee’s customers, this may result in some legal disputes. To set high standards for the franchisees, a brand must have high standards when choosing the suppliers. Certain conditions, such as warranty, adequate delivery schedule, and payment terms, should be followed. Thus, franchisors should check on their suppliers to see if they can provide the supplies needed according to the brand’s standards.
Any customer who doesn’t feel they are receiving their money’s worth can file a complaint. And the franchisor should be able to resolve the issue at the soonest possible time.
- Differences between Franchising locally and internationally. Due diligence is expected from every franchisor. And with the different territories come different laws that need to be followed. Therefore, knowing the laws that govern franchising must be necessary wherever the franchise business should exist.
- Competition and rivalry. A franchisee should only carry the brand’s products and nothing else. It would create a problem if the franchisee promoted goods from another franchisor while the franchisee was in business with the brand.
- Intellectual property rights. All franchise agreements carry some sort of invention or unique creation that should only be distinguished from the brand. Thus, this would entail having to apply for a trademark. Failure to make this move may cause some problems and, at the same time, confusion with existing customers.
There are always risks associated with any kind of business. Therefore, support from a franchising lawyer should always be considered to minimize these problems and achieve a smoother business flow.
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You may contact Armando “Butz” Bartolome for questions and more information.
By email: aob@gmb.ph
FB Page: Armando Bartolome
Linkedin: https://www.linkedin.com/in/franguru/
Website: https://www.gmb.ph
