Operations
Most franchisors want fairly tight control over your day-to-day operations. This is usually achieved by providing you with a copyrighted operations manual that spells out, procedure by procedure, the ways in which you are expected to run the business. It will include the franchisor’s policies and procedures, and cover such details as the hours you must remain open, record keeping methods, procedures for hiring employees, and, in a restaurant operation, such matters as recipes, portion sizes, food storage and handling procedures, and menu mix and selling prices.
You should inspect the manual if possible prior to signing the franchise agreement to be sure that its requirements are practical as far as you are concerned.
The franchisor’s operating policies and procedures are an area that can cause considerable franchise dissatisfaction once a new business has been successfully established, particularly if they force you to follow inefficient or unprofitable methods, or preclude you from taking advantage of local suppliers’ discounted product prices that are lower than the franchisor’s. To combat such dissatisfaction, you should carefully read the contract to find out how you must, so to speak, toe the line.
Where you are required to purchase products and/or supplies from the franchisor or approved suppliers (this is referred to as “tied” selling), you should consider the locale of the suppliers since this will dictate shipping costs and distances as well as timing of deliveries, which may be important in the case of perishable supplies. The contract should ensure that you can select the supplier if circumstances permit.
Does the contract call for a minimum purchase quota (a form of hidden cost)? If the contract requires you to purchase only from the franchisor, how are the prices of the products or supplies established? What assurance do you have that the prices will be reasonable or competitive?
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