Business franchising occurs when a company agrees to or authorizes the sale of its goods and services in a certain manner to interested buyers. Franchising is a good and sound idea because buying a proven business formula grants the franchisee with a competitive advantage in the sense that he/she will learn from the success of others.
The challenges or obstacles begin when trying to explore the innumerable possibilities. A franchisee must not focus solely on finding the one that best fits his/her needs or lifestyles, but rather address the issue of ethics surrounding the entire agreement.
Laura Jayne McDonald, a relatively new franchisor herself, shares a few tips to guide franchisees along their way. To begin with, the first sign one should look out for is trade associations that screen its members for ethical business practices; examples of such associations are the Canadian Franchise Association (CFA) in Canada and the International Franchise Association (IFA) in the United States. These two review the franchisor’s legal documents to make sure they correspond with legal and ethical standards.
Another element that one should pay attention to is legal documents. These are guidelines as to what should be included in the franchisor’s franchise agreement, along with other legal documents to be handed down to the franchisee. For example, the requirements in the U.S. Uniform Franchise Offering Circular (UFOC) entail a thorough account of the details surrounding the franchise agreement.
Moreover, it is necessary to have a wait and review period, granted by the franchisor, between receiving the legal documents and signing any agreement. In Canada, it is usually fourteen days; in the United States, it is ten business days – fourteen calendar days in Illinois. Also, a franchisor must always provide the needed information concerning earnings. The franchisor must include in its UFOC the earnings claims, and not rely on idle promises of success and higher income.
Additionally, contacting existing franchisees may provide potential ones with information and insight that might help them afterward, even though each has his/her life circumstance and income goal in mind.
Last but not least, disputes and conflicts between franchisors and franchisees must be resolved no matter what the circumstance. By doing so, ethical standards are being practiced. In a nutshell, the key is open communication between both parties.
Briefly, the franchisee should identify with the product, the branding, and the company’s philosophy and goals; he/she should hire legal counsel to look over the franchise agreements; and, should gather as much information as needed. Also, the franchisor should provide all the information requested and answer to any questions that might arise during the process.
