franchising aspects Nov, 16 2009

Franchising LOC Know your boundaries

If an entrepreneur is considering to venture into franchising, then the person is suggested to validate his/her franchising territory well in advance. Below are the issues related to franchising territory and its significance

By Ramanjit Kaur
Feature Writer
Franchising LOC Know your boundaries

Franchise territory is an area allotted to the franchisee to use the franchise rights. It is an exclusive territory, or a protected territory for which the franchisee is given rights preventing the franchisor from appointing any other franchisee for the territory or carrying on business himself/herself in the territory. The demarcation of franchise territory helps the franchisees in ensuring protection from the unwanted competition from a similar operating system.

How is it beneficial?

The franchisors divide the franchising territories in such a way so that, their franchisees get as much as opportunities thus, leading the franchise to succeed. By dividing the franchising territories into limited areas, franchisors force their franchisees to cover deeper segments of the market. It gives the franchisor a chance to support a number of franchise units, which in turn ensures the franchisor a good aggregate of sale of his/her brand.

However, as a franchisee one needs to check whether one’s franchising territory is large enough to ensure good profit potential. Moreover, this exclusive right will assure the franchisee with benefits of the efforts put in to raise the sales at one’s franchise store.

Steps to protect your franchise territory

Once an aspirant has finalised his/her decision of taking a franchise, then the franchisee must determine the exclusivity of the franchise territory. Listed below are a few instances where the franchisees must ensure the security and exclusivity of their franchise territory:

Vague franchise document

The franchise agreement is the best way to protect your franchise area. Franchise agreement is a legal document that details the business policies, rights and responsibilities of the franchisees, and other various provisions. So, when one reads the franchise agreement, then one should look for one’s territorial rights and exclusivity. A detailed documentation of the territorial rights protects the franchisee from future infringement. Therefore, it is advisable to confirm that the franchise agreement includes all the details that the franchisee needs to make the franchise territory exclusive. Also, it is advised to read the fine print thoroughly!

Mergers and acquisitions

‘Mergers’ and ‘Acquisitions’ are the sensitive areas to deal with in one’s franchise outlets. There are chances that the franchisor either merges with or acquires a competing franchise. If this is the case in point, then, it may create problems for the existing franchisees. For example, there can be an increase of more number of franchised outlets in that particular area, and that may act as a competitor for your franchised store. Therefore, it is necessary for the franchisees to make it clear with the franchisor in advance that in case of any such proceedings in the near future, then one should be provided with legal compensations.

Valuable Information

Before finalising of buying a particular franchise, the franchisee must have enough information regarding one’s franchise territory. So, in order to have a clear understanding the franchisees are advised to raise the following questions:

  • What does the Franchise Disclosure Document says about the franchise territory and how does that apply to you?
  • Are there other competitors in that area? If so, how close they are?
  • Can you choose your territory?
  • What do you do if you want to open more franchise outlets within the same area?
  • Has your franchisor ever faced the territorial dispute? If yes, how has he handled it?

Thus, to conclude the franchisees are advised  to take time and understand the details of  franchise territory and ways to ensure its protection and  uniqueness before venturing into franchise business.

Related: The key to franchise relationships

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