Power couples seeking to invest in franchise opportunities want to gain the time freedom and flexibility a franchise investment can offer. Investing in a franchise business can be an ideal way to achieve financial stability while gaining professional autonomy. However, many may be unfamiliar with the differences between a franchisee and a franchisor. As a result, it’s imperative to understand these differences and the legal structure of franchising before investing.
The International Franchise Professionals Group (IFPG) is a membership-based franchise consulting network with more than 1,300 franchisors, franchise consultants, and vendor members. Our purpose-driven mission is to help potential investors throughout the franchise process with integrity, ethics, and collaboration. Both franchisees and franchisors will need to know how to interact and work together in order to build a successful business relationship. A key aspect to this relationship is understanding the responsibilities of each franchise party, their roles, and the business terms outlined in the franchise agreement. Below are the frequently asked questions that power couples need answered to ease their franchise journey.
What Is a Franchisee?
A Franchisee is the individual entrepreneur who purchases the rights to manufacture, sell, and operate an independent franchise business from its Franchisor. The Franchisee pays an initial franchise fee and ongoing royalty payments for using the Franchisor’s intellectual property. The franchisee also pays for the cost of any products and services associated with the franchise. The franchisee typically sets up their own local business within a structure that is established by the franchisor and enters into an agreement with the franchisor that covers the duration of the franchise arrangement.
What Is a Franchisor?
A franchisor is the company that owns and licenses the business model that is franchised. The franchisor is responsible for creating the trademarked branding that is utilized by the franchisee in operating their business. The franchisor is also responsible for creating the operational manual, which outlines the policies and procedures that are to be followed by the Franchisee in operating their business. The franchisor also provides support and guidance to the Franchisee in the areas of marketing, finance, and operations.
What Are the Obligations of a Franchisee?
As a Franchisee, you are typically responsible for selecting, locating, and developing your own space, as well as hiring and training staff. You are also responsible for operating the franchise in the same manner as the other franchisees in the system, as outlined in the Franchisee Agreement. You must serve customers courteously and professionally while maintaining a consistent high standard of customer service.
What Are the Obligations of a Franchisor?
The Franchisor typically agrees to provide the Franchisee with trademarks, an operations manual, business systems and processes, and marketing resources to assist the Franchisee in successfully operating their franchise. The Franchisor also provides training, as well as ongoing support. The Franchisor also administers performance and compliance standards to insure all franchisees are conforming to the brand and its standards.
Are Franchisees Employees of the Franchisor?
No. Franchisees are independent business owners and not employees of the Franchisor. It is in the best interest of both the Franchisee and the Franchisor to remain independent from each other to create autonomy. This structure is created for the protection of both parties, as it ensures that decisions are made in the Franchisee’s best interests and that the Franchisor is not responsible for the financial performance of the Franchisee’s business.
What Is a Franchise Agreement?
A Franchise Agreement is a legal document that outlines the conditions of the relationship between a franchisor and franchisee. The agreement outlines both parties’ obligations and expectations, as well as the terms of the Franchisee’s rights to operate their business under the Franchisor’s branding. It also outlines the specific requirements for operating the franchise business, such as required fees, start-up costs, and supplies.
Investing in a franchise business is a major decision. Understanding the roles and responsibilities of both the Franchisee and the Franchisor is essential to success. The International Franchise Professionals Group (IFPG) is dedicated to helping power couples navigate the process – from idea generation to decision-making to getting the investment.