For businesses that are thinking about franchising but are not yet sure of how their business model will operate as a franchise system, one of the main questions we receive is: how much support do I need to provide to franchisees? One of the central premises of franchising is to develop a system where the franchisor has a significant level of control on how the business functions. The flow on effect is that the franchisor will need to show how the franchise system works, and this is likely to require a level of training and support. Below, we set out the franchisor’s obligations as well as how much support you are actually required to provide to your franchisees.
No More Than Your Willing to Give
The short answer is that your franchise agreement and disclosure document should outline exactly the level of support you are willing to provide, and this can be as minimal as you would like. You will need to understand, however, that your franchise agreement includes what level of support you provide as a contractual term. Consequently, you will be obliged to provide your franchisees with this level of assistance. The main takeaway is, however, that some franchises provide support and some do not and this will come down to the way you draft your franchise legal documents.
How is Support Defined?
Support is a vague term and as such, franchise documents avoid including this word because of its level of ambiguity. When speaking to your solicitor about how you want to operate, it is better to outline what support you will provide and for what period. For example, the following areas would be considered support:
- Initial training;
- Ongoing training relating to the franchise system;
- Updates on the franchise system;
- Ongoing training relating to ‘running a business’ generally, e.g., Advice on your business plan; or
- Responding to franchisee questions either by e-mail, phone or in-person.
The Franchising Code of Conduct
Aside from what the franchise legal documents include, the Franchising Code of Conduct outlines certain areas that the franchisor needs to consider when thinking about the level of support they need to provide. Here, clause 6 of the franchise agreement relates to good faith and is the primary reference to the franchisor’s obligation.
In particular, clause 6(3)(a) states that when assessing whether a party exercised good faith, it will consider “whether the party cooperated to achieve the purposes of the agreement”. This highlights the importance of the franchise agreement and expressly states that purpose is a relevant consideration. Overall, acting in good faith may require you to provide a level of support for the purpose of the agreement.
As a franchisor, understanding your obligations according to the Franchising Code of Conduct as well as the practical operation of your franchise agreement are important ways to ensure the smooth running of your franchise. You should take some time during the drafting phase of your franchise agreement to consider exactly how much support you would like to provide and how that fits in with the entire franchise system. If you have any questions, let our franchise team know on 1300 544 755.