How to Get It Right as a Franchisee

Have you ever thought about becoming a franchisee for a national brand? It can bring you an instant market of loyal customers due to brand familiarity. Joining a franchise select insurance program will help you review and meet coverage needs.

The following are six basic requirements of the Franchise Rule that you need to comply with if you seek to become a franchisee.

  1. Regular Fees

    As a franchisee, you will have to pay regular fees to use the established brand name to attract business. The payment is a flat fee in some cases, while other deals may involve a revenue-sharing program. Some franchisees also contribute to a marketing fund that the franchisor uses to promote the brand nationally. Failure to pay regular fees will amount to a breach of the franchise agreement.

  2. Operational Standards

    Even though you will be considered an independent owner, you must still follow operational standards established by the franchisor in their operations manual, such as site location, using trademarks associated with the brand, employee management, and service procedures. In addition, a franchise select insurance program will help you establish coverage.

  3. Supplier List

    One of the most stringent obligations imposed on the franchisee is basing supplies on the franchisor’s approved supplier list. Part of national branding involves working with a consistent and reliable supply chain that can keep delivering quality products, contributing to efficient production. National franchises typically want customer experiences to be consistent from region to region. Be aware that failure to purchase from the franchise list can lead to a breach notice, termination, and potential legal action.

  4. Employee-related Obligations

    If you hire employees, you must comply with federal, state, and local labor laws. More and more franchisors are making workplace compliance a top concern to avoid a tense atmosphere on the brink of fines. In the U.S., many companies are now getting “Environmental Social Governance” (ESG) ratings that are passed along to investors. Operating as a socially responsible, equal opportunity employer can boost these ratings. In some parts of the world, franchisors face financial responsibilities when their franchisees fail. That means in some cases, the franchisor pays franchisees for compensation and benefits.

  5. License and Provisions

    Franchise agreements determine how franchisees may operate in terms of location or as a mobile service. Typically, you cannot service customers outside your designated region; otherwise, your firm can receive a breach notice. Franchisors often control leases and occupancy licenses. Failure to comply with lease or license agreements can lead to termination.

  6. Renewal and Transfer

    The franchisor has the upper hand at renewal time and can drop franchisees that are non-compliant with the company’s regulations. Usually, if the franchisee is financially successful and runs well with positive reviews, the contract gets renewed, and the franchisee pays a renewal fee. Selling a franchise must be approved by the franchisor. It involves resolving breaches and paying reasonable costs, such as for new equipment to replace old gear. You must further pass along recommendations for a potential buyer of your business.

What If One Fails to Comply?

Non-compliance with any of the franchise rules is the primary way a franchisee may be dropped from the network. The first response to non-compliance is usually a breach notice, which informs the local operator of the failure to follow requirements. The franchise operator will then be given a certain number of weeks or months to rectify the situation or face termination.

The franchise agreement can contain provisions that forbid a franchisee to operate a similar business after becoming an ex-franchisee. A franchisor may have to sue franchisees if they damage the brand’s reputation or do something to hurt its revenue streams.

Becoming a franchisee requires understanding contracts and living up to them or lose affiliation and face litigation. Establishing a franchise select insurance program is important to get your company off to a good start.

Joining an established franchise network can be a profitable venture if you’re protected with the right insurance. Contact us at RMS Insurance Brokerage, LLC  to learn more about how to ensure you have the proper coverage for your franchise business.

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