Advisory Apr, 07 2010

Healthy relations for flourishing franchise

Establishing a successful franchise network demands strong bonding between the franchisor and franchisees. However, there are situations if not taken care of, may lead to strained relationships. Let us investigate

By Abha Garyali
Sub Editor
Healthy relations for flourishing franchise

The franchisor-franchisee relationship is undoubtedly an important criterion in running a successful franchise network. At the initiation of the franchise process, the relations between the franchisor and the franchisee are affable. But, once the franchise agreement is signed and the partnership is established number of situations can arise that may spoil this healthy relationship. Maintaining healthy relationship is important as the franchisors look forward to expand the business with the help of franchisees and the franchisees want to make maximum profits by partnering with the same brand.

Most of the franchisee- franchisor relationships that do not work result from a franchisee misunderstanding of the franchising model, or the franchisor failing to meet the expectations of the franchisee. Below given are a few situations that can hamper the franchisor-franchisee relation.

Disrupting situations between franchisor and franchisee

For franchisors

Breaking territorial rights: In a few cases the franchisors can give his franchise to another franchisee in the same territory of his previous franchisee. This can hinder the sales of the old outlet located at the same place. Such actions might disrupt the cordial relationship of the franchisor and franchisee. Franchisors must ensure franchisee’s success before considering his profits.

Insufficient training to franchisees: Franchisees being new to the business depend on the franchisor for training and guidance. At times, the franchisor denies giving further training to the franchisee after some point of time. Such denials can have serious repercussion on the franchisee. Franchisors are required to stand up for all their promises that are made in terms of training and support.

Hidden costs: Most franchisees take loans to buy a franchise. To further complicate the matter, franchisor at times asks for more investments for advertisements or promotional affairs called hidden costs without any prior notice. All these capital related issues should be openly discussed before the signing of the franchise agreement.

Lack of communication: Every franchise relationship requires free-flowing communication between the franchisor and franchisee. At every step, it is only through communication a franchisee and franchisor can get the best of each other. Lack of communication can ruin the existing relationship or even breaking of the agreement.

For franchisees:

Alterations without permission: Being young and enterprising, a few new franchisees may like to alter designs of the outlets without taking prior permission of the franchisor. Moreover, the franchisees for the betterment of their outlet may install certain changes as well. This can make the franchisor annoyed and bitter towards the franchisee. No doubt, the outlet belongs to the franchisee but the brand belongs to the franchisor. Therefore, franchisees must seek permission before altering the outlet.

Delay in royalties: Royalty is the small percentage of profits paid by franchisees to the franchisors. Many franchisees considering it a burden avoid paying it on time. This can surely hamper to the franchisor-franchisee relationship.

Failure in maintaining standards: Franchisees are the pillars of the franchise network. A single mistake on their part can damage the reputation of the brand. Therefore, franchisees should always maintain the decorum set by franchisors.

Not paying heed to franchisors: A few franchisees in their attempt to be different and innovative, may not take the advice of the franchisor seriously. Nevertheless, the latter’s advice will surely help the franchisee to get more success. 

To conclude, the franchisor-franchisee relation has been often compared with the parent-child relation in which the franchisors are the parent while franchisees the children. Any trivial misunderstandings or differences in perceptions can have adverse affect on the franchisor-franchisee relationship.

Related: Fear of smart franchisees

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