By Peter Snell
Over the next several issues of Canadian Business Franchise, this column will continue to explore different aspects of the franchise agreement, to give you a better understanding of its basic elements. In this issue, we will look at franchisee advisory councils (FACs) and the increasingly important role they play in franchise systems.
Please note it is extremely important for you to take the time to fully analyze and review any franchise agreement, disclosure document and respective attachments before you sign them. While the following information serves as a general overview, as always, you should also seek your own legal advice when reviewing a franchise agreement. Only then can you obtain specific information and recommendations relevant to your particular circumstances.
The franchising relationship
Franchising represents an ongoing business relationship between a franchisor and its franchisees. The signing of the franchise agreement itself is only the beginning of this long-term relationship; it is also extremely important for franchisees to establish good communications on a frequent, ongoing basis with their franchisor.
Many franchising professionals over the years have suggested the business arrangement is akin to a marriage, in part because communication is essential for the health and success of the relationship. One major difference, however, is a franchisor has multiple franchisees, rather than entering a two-party relationship like a marriage. This is important because franchisees can learn a lot from each other and find mutual points of interest and support with regard to how they operate their businesses.
Further to this comparison, franchising can be said to comprise two distinct phases. In the first, the startup phase for a franchise business, there is usually a significant level of interaction between the franchisor and the new franchisee, including extensive training and, if the franchise involves a physical location, the construction, development and outfitting of the location in the style and image required by the franchisor. Shortly before, during and after the opening of the franchise, there is typically a significant amount of assistance provided by the franchisor, including promotion of the grand opening, public relations (PR) efforts and other efforts to build excitement and anticipation for the opening of the new business.
In the second phase, after the franchise’s initial startup is complete, the business settles into what is hopefully a strong, profitable operation. The frequency and amount of communication between the franchisor and the franchisee will decrease, as the franchisee requires less assistance from the franchisor.
There are still obligations for regular reports, inspections and, in most cases, an annual convention. In these ways, however, the franchisor-franchisee communications become much more structured, predictable and routine in the second phase. There may be information bulletins, e-mails and newsletters provided by the franchisor for broad distribution to all of the franchisees. The franchisor’s field staff’s periodic visits to each franchise, while regular, are generally infrequent.
The reason for FACs
As a consequence of this inevitable reduction in communications, the franchisee becomes less reliant in his/her second phase upon the franchisor for continued information and support. This trend can be both positive and negative. While it partly represents the franchisee’s increased ability to run his/her own business without needing as much help, it is also common for franchisees in their second phase to become somewhat discontent with their role within the franchise system. If they perceive little need for the franchisor after the initial setup of their business, after all, then they may start to question why they continue to pay to be part of a franchised system.
The key to countering this negative trend is to ensure strong, ongoing communications between the franchisor and the franchisees—but once the franchisees are operating in a more independent manner in their second phase, they may well wonder (a) what they need to communicate about and (b) how such communication is best facilitated?
Franchise systems frequently provide answers to both of these questions by establishing FACs, which help co-ordinate and structure how franchisees interact with each other by discussing common concerns, issues and opportunities.
Even in cases where FACs are not established, franchisees inevitably begin to communicate with each other about such topics. It is to franchisors’ advantage to seek to establish strong FACs, particularly because they deliver valuable feedback to the franchisors about their systems.