Require Potential Franchisee Advice – Best Practice #50
This is a best practice for both potential franchisees and established franchisors. We believe it is best practice for a franchisor to require potential franchisees to seek specialist legal and accounting advice, as a minimum, before signing a franchise agreement. There is research that demonstrates use of advisors to be associated with higher levels of downstream franchisee satisfaction and reduced franchisee-franchisor conflict.
In a practical and logical sense, potential franchisee use of advisors will make for a more informed decision – and a more realistic alignment of expectation to performance. It will help the franchisee better understand the franchise system, including the various roles, responsibilities, restrictions and other agreement terms. It will also help the potential franchisee understand support levels, and what will be required to make the unit successful from a management perspective. All of this helps provide for a solid start point in the franchisee-franchisor relationship journey.
From a franchisors point of view, we believe requiring potential franchisees obtain advice to be very important. Franchise arrangements are complicated. Consequently, advice will help potential franchisees understand the nature of the arrangement that they are entering more fully. Good questions then also invariably follow and the franchisor, in turn, has a strong basis for understanding potential franchisee fit to their model.
In some areas, use of certain advisors (particularly legal, but also accounting) are mandatory or recommended. In New Zealand, for example, the Franchise Association of New Zealand (FANZ) requires member franchisors see a certificate from a potential franchisee solicitor or a potential franchisee signed statement indicating the franchise agreement has been explained to them. As an alternative, the potential franchisee can also indicate that they have declined to take independent legal advice. FANZ also suggests potential franchisees should seek financial advice on the franchise proposition from an accountant experienced in franchising – and many franchise companies will seek a certificate indicating independent accounting advice has been provided.
We reiterate and recommend that we believe, as a best practice, franchisors should make it mandatory that that a potential franchisee seek legal advice before signing the franchise agreement. We also believe that franchisors should make it mandatory a potential franchisee seek accounting advice as well.
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