Tips For Franchisors

Franchise.co.nz:

1. Proceed with Caution
Be careful about the statements you make to franchisees. Back up any representations with factual information or data. Assumptions made must be reasonable having regard to the factual information or data on which they have been based.

2. Take Notes
Take notes of all meetings with prospective franchisees. Make sure you retain these notes and that they are an accurate record of what was said and agreed.

3. No Promises
Do not make any promises. When discussing financial turnover and profit projections, have evidence available to back them up and keep copies on your file. Tell the prospective franchisee you are not making any promises.

4. Success and Failure
Stress the reality of success and failure. Make it clear to prospective franchisees that success or failure will depend on how good they are at operating the business. Although the franchise provides a very good basis on which to run a successful business, it is not a guarantee. Emphasise what is required and expected of a franchisee to make their franchised business successful.

5. Independent Enquiries
Encourage the franchisee to make their own enquiries about the franchise. Get them to talk to other franchisees and encourage them to obtain independent legal and accounting advice. Give them a list of all franchisees and do not make any suggestions as to which franchisees should be approached. Leave it to the prospective franchisee to make that choice.

6. Schedule of Documents
Keep copies of all documents which you give to prospective franchisees and record the date, time and circumstances in which you gave them.

7. Evidence of Independent Advice
Insist on the franchisee taking independent advice from a lawyer and accountant who have experience in dealing with franchises. Obtain a certificate from the franchisee’s professional advisors stating they have advised the franchisee and that the franchisee has not relied on any representations made by the franchisor.

8. Separate Disclaimer Document
In the Stirling Sports case the Court accepted it was not unreasonable for a franchisor to set out to protect itself against allegations of misrepresentation. It is worth considering the use of a separate disclaimer document. Ask the franchisee to sign the disclaimer document prior to entering into the franchise agreement. The Court clearly indicated that a disclaimer should be brought to the attention of the franchisee at an early stage in the discussions and negotiations, and that it was preferable for it to be a separate document rather than part of a lengthy franchise agreement.

9. Tailor the Agreement
Make sure the franchise agreement is relevant to the particular franchise which you are offering and clearly defines the nature of the franchise and the relationship between you and the franchisee. In the Stirling Sports case the Court made it clear that if franchise agreements and other documents relied upon by the franchisor do not accurately reflect the nature of the franchised business and the relationship between the franchisor and the franchisee, it will be difficult for a franchisor to rely on any clauses which exclude the franchisor’s liability for misrepresentation.

Also read: Tips For Franchisees.