Republic of the Philippines

Bulacan state University

City of Malolos
College Of Business Administration

FRANCHISING

Submitted by:

Bartolome, Hannah Jean

Batongbakal, John Paul
Francisco, Hannah Marie
Peñaflor, Dessa Mae
Salong, Camille Joy

Submitted to:

Mrs. Helen Baesa

November 2019
What is Franchising?
Franchising is a form of business by which the owner (franchisor) of a product, service or
method obtains distribution through affiliated dealers (franchisees).
Franchising refers to the method of practicing and using another’s perfected business
concept. In a franchise relationship, the franchisee is granted the right to market a product or a
service under a marketing plan or a system that uses the trademark, name, logo and advertising
owned by the franchisor.

What is Franchise?
A franchise is a type of license that a party (franchisee) acquires to allow them to have
access to a business's (franchisor) proprietary knowledge, processes, and trademarks in order to
allow the party to sell a product or provide a service under the business's name. In exchange for
gaining the franchise, the franchisee usually pays the franchisor an initial start-up and annual
licensing fees.

Types of Franchising
1. Product Franchising
This is the earliest type of franchising. Under this, dealers were given the right to
distribute goods for a manufacturer. For this right, the dealer pays a fee for the right to sell the
trademarked goods of the producer. Product franchising was used, perhaps for the first time, by
the Singer Corporation during the 1800s to distribute its sewing machines. This practice
subsequently became popular in the petroleum and automobile industries also.
2. Manufacturing Franchising: ADVERTISEMENTS:
Under this arrangement, the franchisor (manufacturer) gives the dealer (bottler) the
exclusive right to produce and distribute the product in a particular area. This type of franchising
is commonly used in the soft-drink industry.
3. Business-format Franchising
This is recent type of franchising and is the most popular one at present. This is the type
that most people today mean when they use the term franchising. In the United States, this form
accounts for nearly three-fourth of all franchised outlets. Business-format franchising is an
arrangement under which the franchisor offers a wide range of services to the franchisee,
including marketing, advertising, strategic planning, training, production of operations manuals
and standards and quality – control guidance.
Some authors have classified franchising into yet other three types as follows:
1. Trade-name Franchising
When franchisee purchases the right to use the franchisor’s trade name without actually
distributing the specific trade mark products exclusively using the name of the franchisor, this is
called ‘trade-name franchising.’
2. Product Distribution Franchising
Such franchising involves a system in which a franchisor gives license to the franchisee
to sell the specific products under the trademark and brand name of the franchisor. This type of
franchising is commonly used to market automobiles (such as Chevrolet), soft-drinks (such as
Coca-Cola) and appliances. It is worth mentioning that these two types of franchising give
franchisees some sort of franchisor’s identity.
3. Pure Franchising
When franchisor sells the complete business format and system of his/her product to the
franchisee, it is called ‘pure franchising.’ In other words, this type of franchising provides the
franchisee with a complete business format including license for a trade name, the product or
service to be marketed, the physical plant, methods of operation, a marketing strategy plan, a
quality control process, and so on. Such type of franchising is common among fast-food
restaurants (such as McDonalds) hotels, educational institutions (such as Delhi Public School,
(DPS), and many others. Franchising is an old concept in use for long time in the business world.
Some trace out the history of franchising dating back to the mid-nineteenth century when Isaac
Singer decided to improve the distribution of his sewing machines, i.e., ‘Singer.’ Nowadays,
franchising has become a common business format especially in the businesses with a good track
record of profitability and businesses which are easily duplicated.

Example of Franchising Companies

Franchises offer the opportunity to own a small business without reinventing the wheel.
Small-business owners pay companies for the rights to use their trademarks, services and
products in return for support and company guidelines on how to run their particular businesses.
Many industries have companies using the franchise model, including food, lodging and business
services. Contact franchisors for their franchise disclosure documents, which discuss the
franchise opportunities and requirements in detail.
McDonald's Restaurants Corporation
At the time of publication, this international quick-service restaurant company has over
75 percent of its worldwide restaurants independently owned. Business owners can purchase a
new or existing restaurant. An initial down payment is required, and the rest of the cost can be
financed for up to seven years. During the terms of the franchise agreement, ongoing fees
include rent and service fees. Some of the qualities the company is looking for in a franchisee are
business experience, an acceptable credit history, willingness to complete the company's
comprehensive training program and sufficient liquid assets to invest in the business.
Merry Maids Residential Cleaning
Merry Maids is a residential cleaning business opportunity. The company was founded in
1979 and, at the time of publication, has over 900 cleaning franchises in the United States and
Canada. Franchise owners benefit from ongoing corporate support through regional meetings,
seminars and conferences, an annual convention and newsletters. Training involves an eight-day
program, followed by interaction with a franchise development team and assistance from an
established franchise owner. The initial franchise fee includes the equipment, supplies and Merry
Maids products. The company also provides business owners with a customized web site.
H&R Block Tax Preparation
This tax preparation company began offering franchise opportunities in 1955. The
company helps franchise owners keep up with the changing economy and increased tax
regulations. Some of the support offered to franchisees includes tax software, the ability to
prepare taxes online and a tax preparer training program for employees. The company also offers
on-the-ground training and support, as well as a dedicated management support team to help
franchisees grow their businesses. The company does have financing options for business owners
who wish to purchase an existing franchise.

Examples of franchising relationships include:

1. A manufacturer-to-retailer arrangement – as occurs with car vehicle dealerships.
The franchisor supplies the dealership (retailer) with vehicles.
2. A manufacturer-to-wholesaler arrangement – common with soft drinks companies.
The franchisor grants the franchisee a license to manufacture and distribute its product(s). This
kind of franchise is common when the franchisee is in another country.
3. A wholesaler-to-retailer arrangement – the franchisor (wholesaler) sells products to
the franchisee (retailer) who sells them to the general public. This kind of arrangement is
common in cooperatives, where the franchisee is, in fact, part of the cooperative (the cooperative
is the franchisor).
4. A retailer-to-retailer arrangement – the “classic” business format franchise. The
franchisor markets a product (or service) through a network of franchisee retailers.

According to Philippine Franchise Association, the Advantages of Franchising are:

1. The Experience of the Franchisor
When an individual buys a franchise, he purchases the years of experience and the proven
methods of the franchise system, also known as the franchisor. One franchisee expressed it this
way: “What I have learned from the franchisor was worth ten times what I paid for the
franchise”. In any new business, much time and money are spent in trial and error. A proven
franchise may eliminate many of the start-up problems. This reason permits one to open a
franchise business with little or no previous experience in a given industry.
2. Training
A franchise system will provide training for the new franchisee. This is usually done at
the home office and at the franchisee’s place of business. This training should prepare the new
owner in all facets of the business.
3. Buying and Advertising
Most small-business people cannot afford inventory products in bulk or extensive
advertising. The franchisee buys this advantage when he or she purchases the right to use the
franchise system’s purchasing power and advertising. Most system provide advertising. Most
systems provide advertising help and direction. Furthermore, as the number of franchisees
increases, so does public awareness of the franchise. This can be tremendous advertising
advantage. Also, franchisees that are located near one another can advertise together thus
reducing cost.
4. Ongoing Advise, Research and Development
Franchisees needs assistance throughout the term of their business endeavors. The
franchise system’s staff of experts can give this needed help in all aspects of the business. The
franchisor is also in a position to provide on-going research and development. Thus, new
products and services will be brought to the attention of the franchisee.
5. Business Synergy
The word “synergy” refers to the idea that the sum of the whole is greater than the
separate parts. This principle can be applied to franchising. Those who buy a franchise become a
part of a “family” where all members work together for the good of the whole. Indeed, there can
be support and assistance in a franchise organization that assists everyone in becoming
successful. Often, some of the most effective ideas come from franchisees who in turn share their
ideas with the corporate office and with other franchisees.

According to Philippine Franchise Association, the Challenges in Franchising are:

1. Working within the System
People who have difficulty following directions or who dislike working within a system
may find franchising extremely frustrating. Conformity to the franchise system is critical if
consistency among franchises is to be maintained. However, there are as such as marketing
where a franchisee can be creative.
2. The Risk
While it is true that purchasing a franchise has less risk than starting an independent
business, there still are risks. Because you own the business, you, to a great extent, determine the
success of your venture. The franchisor may have a great program and a respected name, but in
the final analysis much of the risk is in your hands.
3. Working with the Franchise System
Buying a franchise can be closely compared to entering into a marriage. Both are legally
binding relationships that can last for a long time. Your relationship with the franchisee system
and its staff will extremely important. Get to know the franchise system through the following
methods.
1. Visit the corporate headquarters. Seek to get a feel for the staff and how smoothly the
operations run.
2. Talk to other franchisees. Ask what their relationship with the franchisor like.
3. Read as much about franchise as possible.
4. False Expectations
Some people enter franchising expecting instant success. Perhaps the reason some expect
this is the tremendous success achieved by some franchisees. However, this success did not come
without hard work and great effort. Franchising, like any other business, requires tremendous
time, initiative and industry. Obtain from the franchisor as realistic a picture as possible as to
what is required in operating that particular franchise.
5. Managing the Business
Some individuals are more prepared to manage a business than others. They have some
business experience and have learned to get along well with people. Other individuals may find
that managing a franchise is a tremendous burden. You must honestly assess your preparation to
run a business. If you find that you have little or no experience, you may want to seek special
assistance from the franchisor in the business management.

9 ADVANTAGES OF FRANCHISING ACCORDING TO MARK SIEBERT

1. Capital
The most common barrier to expansion faced by today’s small businesses is lack of
access to capital. Even before the credit-tightening of 2008-2009 and the “new normal” that
ensued, entrepreneurs often found that their growth goals outstripped their ability to fund them.
Franchising, as an alternative form of capital acquisition, offers some advantages. The
primary reason most entrepreneurs turn to franchising is that it allows them to expand without
the risk of debt or the cost of equity. First, since the franchisee provides all the capital required to
open and operate a unit, it allows companies to grow using the resources of others. By using
other people’s money, the franchisor can grow largely unfettered by debt.
Moreover, since the franchisee -- not the franchisor -- signs the lease and commits to
various contracts, franchising allows for expansion with virtually no contingent liability, thus
greatly reducing the risk to the franchisor. This means that as a franchisor, not only do you need
far less capital with which to expand, but your risk is largely limited to the capital you invest in
developing your franchise company -- an amount that is often less than the cost of opening one
additional company-owned location.
2. Motivated Management
Another stumbling block facing many entrepreneurs wanting to expand is finding and
retaining good unit managers. All too often, a business owner spends months looking for and
training a new manager, only to see them leave or, worse yet, get hired away by a competitor.
And hired managers are only employees who may or may not have a genuine commitment to
their jobs, which makes supervising their work from a distance a challenge.
But franchising allows the business owner to overcome these problems by substituting an
owner for the manager. No one is more motivated than someone who is materially invested in
the success of the operation. Your franchisee will be an owner -- often with his life’s savings
invested in the business. And his compensation will come largely in the form of profits.
The combination of these factors will have several positive effects on unit level
performance.
Long-term commitment. Since the franchisee is invested, she will find it difficult to walk away
from her business.
Better-quality management. As a long-term “manager,” your franchi­see will continue to learn
about the business and is more likely to gain institu-tional knowledge of your business that will
make him a better oper-ator as he spends years, maybe decades, of his life in the business.
Improved operational quality. While there are no specific studies that measure this variable,
franchise operators typically take the pride of ownership very seriously. They will keep their
locations cleaner and train their employees better because they own, not just manage, the
business.
Innovation. Because they have a stake in the success of their business, franchisees are always
looking for opportunities to improve their business -- a trait most managers don't share.
Franchisees typically out-manage managers. Franchisees will also keep a sharper eye on
the expense side of the equation -- on labor costs, theft (by both employees and customers) and
any other line item expenses that can be reduced.
Franchisees typically outperform managers. Over the years, both studies and anecdotal
information have confirmed that franchisees will outperform managers when it comes to revenue
generation. Based on our experience, this performance improvement can be significant -- often in
the range of 10 to 30 percent.
3. Speed of Growth
Every entrepreneur I've ever met who's developed something truly innovative has the
same recurring nightmare: that someone else will beat them to the market with their own
concept. And often these fears are based on reality.
The problem is that opening a single unit takes time. For some entrepreneurs, franchising
may be the only way to ensure that they capture a market leadership position before competitors
encroach on their space, because the franchisee performs most of these tasks. Franchising not
only allows the franchisor financial leverage, but also allows it to leverage human resources as
well. Franchising allows companies to compete with much larger businesses so they can saturate
markets before these companies can respond.
4. Staffing Leverage
Franchising allows franchisors to function effectively with a much leaner organization.
Since franchisees will assume many of the responsibilities otherwise shouldered by the corporate
home office, franchisors can leverage these efforts to reduce overall staffing.
5. Ease of Supervision
From a managerial point of view, franchising provides other advantages as well. For one,
the franchisor is not responsible for the day-to-day management of the individual franchise units.
At a micro level, this means that if a shift leader or crew member calls in sick in the middle of
the night, they're calling your franchisee -- not you -- to let them know. And it's the franchisee’s
responsibility to find a replacement or cover their shift. And if they choose to pay salaries that
aren't in line with the marketplace, employ their friends and relatives, or spend money on
unnecessary or frivolous purchases, it won't impact you or your financial returns. By eliminating
these responsibilities, franchising allows you to direct your efforts toward improving the big
picture.
6. Increased Profitability
The staffing leverage and ease of supervision mentioned above allows franchise
organizations to run in a highly profitable manner. Since franchisors can depend on their
franchisees to undertake site selection, lease negotiation, local marketing, hiring, training,
accounting, payroll, and other human resources functions (just to name a few), the franchisor’s
organization is typically much leaner (and often leverages off the organization that's already in
place to support company operations). So the net result is that a franchise organization can be
more profitable.
Unfortunately, it is difficult to quantify or prove this contention. This much we do know:
Research done during the past 10 years shows top quartile franchisors put an average of 40 and
45.6 percent to the bottom line in 2001 and 2002 respectively. How many industries can you
think of where net incomes in this range are even possible?
7. Improved Valuations
The combination of faster growth, increased profitability, and increased organizational
leverage helps account for the fact that franchisors are often valued at a higher multiple than
other businesses. So when it comes time to sell your business, the fact that you're a successful
franchisor that has established a scalable growth model could certainly be an advantage.
When the iFranchise Group compared the valuation of the S&P 500 vs. the franchisors
tracked in Franchise Times magazine in 2012, the average price/earnings ratio of franchise
companies was 26.5, while the average P/E ratio of the S&P 500 was 16.7. This represents a
staggering 59 percent premium to the S&P. Moreover, more than two-thirds of the franchisors
surveyed beat the S&P ratio.
8. Penetration of Secondary and Tertiary Markets
The ability of franchisees to improve unit-level financial performance has some weighty
implications. A typical franchisee will not only be able to generate higher revenues than a
manager in a similar location but will also keep a closer eye on expenses. Moreover, since the
franchisee will likely have a different cost structure than you do as a franchisor (she may pay
lower salaries, may not provide the same benefits packages, etc.), she can often operate a unit
more profitably even after accounting for the royalties she must pay you.
As a franchisor, this can give you the flexibility to consider markets in which corporate
returns might be marginal. Of course, you never want to consider a market you don't feel
provides the franchisee with a strong likelihood of success. But if your strategy involves
developing corporate units in addition to franchising, you'll likely find your limited capital
development budget won't allow you to open as many locations as you'd like. Franchisees, on the
other hand, could open and operate successfully in markets that are not high on your priority list
for development.
9. Reduced Risk
By its very nature, franchising also reduces risk for the franchisor. Unless you choose to
structure it differently (and few do), the franchisee has all the responsibility for the investment in
the franchise operation, paying for any build-out, purchasing any inventory, hiring any
employees, and taking responsibility for any working capital needed to establish the business.
The franchisee is also the one who executes leases for equipment, autos, and the physical
location, and has the liability for what happens within the unit itself, so you're largely out from
under any liability for employee litigation (e.g., sexual harassment, age discrimination, EEOC),
consumer litigation (the hot coffee spilled in your customer’s lap), or accidents that occur in your
franchise (slip-and-fall, employer’s comp, etc.). Moreover, it's very likely that your attorney and
other advisors will suggest you create a new legal entity to act as the franchisor. This will further
limit your exposure. And since the cost of becoming a franchisor is often less than the cost of
opening one more location (or entering one more market), your startup risk is greatly reduced.
The combination of these factors provides you with substantially reduced risk.
Franchisors can grow to hundreds or even thousands of units with limited investment and
without spending any of their own capital on unit expansion.

4 DISADVANTAGES OF FRANCHISING ACCORDING TO MARK SIEBERT

1. Per-Unit Contribution
As a franchisor, you will not profit from every dollar that goes to the franchisee’s bottom
line. The revenue you generate from each franchisee will be a fraction of what you might
otherwise achieve if you owned and operated the franchise unit yourself.
 If you were to open a company-owned location, you would be entitled to 100 percent of
the profits from that unit (and, of course, would be responsible for 100 percent of the losses). As
a franchisor, your revenues would come from some combination of royalties, product sales,
rebates, advertising assessments, and other fees.
As a franchisor, you might need to sell four to five franchises or more to realize the same
financial gain as you would with just one company-owned operation -- assuming, of course, that
it was profitable. And while your ROI will be immeasurably higher through franchising, if you
can achieve market saturation without significantly taxing your resources, you will have the
potential for higher total dollar returns if you gow through a company-owned-and-operated
channel.
2. The Specter of Litigation
At least once a month, someone tells me they're worried about franchising not for
business reasons, but because they're afraid of litigation.
They've all heard the horror stories: McDonald’s hit with a multimillion-dollar lawsuit
because its coffee was too hot. Franchisees suing franchisors. And it can be scary. Litigation is a
fact of life in America, and ignoring that is the business equivalent of building a straw house --
good shelter, but not in the long run.
That being said, litigation is much less of an issue in franchising than most people
imagine. A franchisor’s contractual liability is largely limited to the commitments you make in
your franchise agreement. And if you know what you're doing, your franchise agreements will be
written by an attorney who is an expert at limiting that liability. The fact of the matter is that
most franchise agreements are decidedly one-sided in favor of the franchisor, making successful
litigation very difficult for franchisees.
For example, as a franchisor, you largely avoid the “slip and fall” liability associ­ated
with accidents that happen in a franchisee’s place of business. You also avoid most of the
potential “employment liability” associated with company-owned operations (sexual
harass-ment, wrongful termination, etc.). And as a franchisor, you're not responsible for on-the-
job injuries -- that responsibility belongs to your franchisees.
The bottom line is that as long as you are careful that your franchise relationship
qualifies as an independent contractor and you have not created an “agency” role or been
negligent as a franchisor, your franchisee has the responsibility for virtually everything that
happens at her location.
3. The Issue of Control
As a franchisor, it's fair to point out that you won't have the same level of control over
day-to-day operations as you would in a company-owned facility. You're not responsible for
hiring, training, disciplining, scheduling, compensating, monitoring, or terminating employees.
In virtually every franchise, the franchisee makes the final decision on where to locate the
business and which contractors to use for build-out. The franchisee typically makes most
decisions in regard to choosing suppliers and pricing their services.
Moreover, with company operations, you can hire and fire at your own discretion. But
when it comes to terminating a franchisee, you won't have that same level of discretion.
But that's not to say that you cannot terminate a franchisee -- you can. When it comes to
terminating a franchisee, you'll need to show cause, which will amount to some type of violation
of the franchise agreement.
4. Investment in Franchising
Finally, let’s not forget that while franchising is often a lower-cost means of expanding a
business, it is not a no-cost means of expansion. As a new franchisor, you may need to anticipate
costs (in terms of time and capital) in a number of areas:
 Creating your business plan and financial analysis
 Developing appropriate legal documents
 Developing a franchise operations manual and other quality control documents, systems,
and processes
 Creating marketing plans and collateral materials
 Adding a franchise opportunity section to your current website
 Training your people on the franchise process
 Creating a new franchisor legal entity
 Printing brochures, letterhead, and other marketing materials
 Marketing for new franchisees
 Refining your local store marketing materials for use by franchisees
 Negotiating third-party vendor agreements on your franchisees’ behalf
 Accounting for franchise sales expenses (which might initially be your time) and perhaps
longer-term personnel expenses
For most companies, the costs of developing a franchise business are significantly lower
than opening just one more company-owned facility -- and the returns can be substantially
higher. While the amount of capital needed will be directly related to your goals and your desired
rate of growth, you should never go into franchising undercapitalized.

According to Sarah Stowe, Characteristics that makes good franchise are:

 Strong desire to improve business skills
 Likes to use proven systems/structure
 Believes that customers must be highly valued
 Some entrepreneurial spirit
 Open to change and feedback
 Real ambition to grow a business
 Committed to the power of a brand
 Believes in prompt responses to staff and clients
  High energy, fast paced and always leads by example

Franchise Agreement
A franchise agreement is a legally binding document that outlines a franchisor's terms and
conditions for a franchisee. Every franchise is governed by these terms, which are generally a
written agreement between both parties. The franchise agreement is signed at the time an
individual makes the decision to enter the franchise system.

Franchise Agreement Requirements

In the United States, a license becomes a franchise if it meets the definition established by the
Federal Trade Commission (FTC), known as the FTC Franchise Rule, and by the various states
that have adopted alternative definitions. Under the FTC Franchise Rule, there are three general
requirements for a license to be considered a franchise:
1. The franchisee’s business is substantially associated with the franchisor's brand. In
franchising, the franchisor and each of its franchisees are sharing a common brand.
2. The franchisor exercises control or provides significant assistance to the franchisee in
how they use the franchisor's brand to conduct business. Because the franchisee is an
independent contractor and not a joint employer, generally those controls are over brand
standards and do not extend to the human resources of the franchisee, nor do they extend
to how the franchisee manages their business—subject to meeting the requirements of the
brand standards—on a daily basis.
3. The franchisor receives a fee from the franchisee for the right to enter into the
relationship and to operate their business using the franchisor’s trademarks. The fee can
be an initial fee or it can be a continuing fee in excess of $500—adjusted annually—with
certain exemptions provided under the law.
Several states have also passed laws that define a franchise, and the definitions may include
some relationships that do not meet the FTC Franchise Rule.

Franchise Agreement Rights and Obligations

A franchise agreement is a license that establishes the rights and obligations of the franchisor and
the franchisee. As in any well-crafted contract, this agreement is designed to protect the
franchisor's intellectual property and ensure consistency in how each of its licensees operates
under its brand. Even though the relationship is codified in a written agreement that is meant to
last at least 10 years, the franchisor needs to have the ability to evolve the brand and its
consumer offering to stay competitive.
The agreement also needs to be flexible enough to allow the franchisor to make contractual
modifications that reflect decisions in response to franchisees' specific needs. However, there are
no changes to the stipulation that franchisees must manage their independently-owned businesses
daily by continually meeting brand standards.

Before Signing a Franchise Agreement

The FTC rule requires that franchisors provide to prospective franchisees a presale franchise
disclosure document (FDD), which is designed to provide potential franchisees with important
information necessary in purchasing a franchise. Considerations include the risks and rewards, as
well as how the franchise compares with other investments.
 Note: Franchisors are required to provide the FDD to prospective franchisees at least 14
days before signing it. The franchisee is entitled to receive the completed franchise
agreement at least seven days before signing it.
The franchise agreement is long, detailed, and provided to prospective franchisees as an exhibit
to the FDD well in advance of the franchisee signing it to ensure they have time to review the
agreement and get advice from their lawyers and other advisers.

Franchise Agreement Pitfalls

Franchising is about consistent, sustainable replication of a company’s brand promise, and must
detail the many business decisions that go into creating a franchise system. It’s complex and, in
most instances, a contract of adhesion, meaning an agreement that is not readily subject to
change.
Because a franchise agreement is meant to reflect the uniqueness of each franchise offering and
needs to craft the dynamics of the intended franchise relationship, copying another franchise
system’s agreement in developing any franchise system is likely the single biggest mistake of
new franchises.
 Warning: Franchisors who choose to work with lawyers and franchise packaging firms
that cut corners and copy others' documents put their franchise systems in peril.
Because of the length and complexity of a franchise agreement, most qualified lawyers will not
attempt to incorporate into one large agreement all of the other agreements required by the
relationship, such as personal guarantees and leases. Instead, those agreements are kept as
separate documents.

Basic Elements of a Franchise Agreement

As with any well-written contract, the franchise agreement needs to deal with some basic
elements including, but not limited to:
 Overview of the relationship. This includes the parties to the contract, the ownership of
the intellectual property, and the overall obligations of the franchisee to operate their
business to brand standards.
 Duration of the franchise agreement. This involves the length of the relationship, the
franchisee’s successor rights to enter into new agreements, and the requirement to
upgrade the franchisee’s location.
 Initial and continuing fees. Franchisees generally pay an initial and continuing fee to the
franchisor for entering into the system and remaining a franchisee. Agreements also
typically include a number of side fees. Most franchise systems provide for a payment to
 an advertising or brand fund that is used by the franchisor to market the brand to the
public and for other contractually defined purposes.
 Assigned territory. Not every franchise agreement grants a franchisee an exclusive or
even a protected territory, and how a territory is established must be defined. Franchisors
also need to deal with reservation of their rights within a franchisee’s territory, including
alternative distribution sites and sales over the internet.
 Site selection and development. Franchisees generally find their own sites and develop
them according to the franchisor’s standards. The role of the franchisor is generally to
approve the location found by the franchisee and then approve, prior to opening, that the
franchisee has built their location to meet design and other brand standards.
 Initial and ongoing training and support. Franchisors generally provide a host of pre-
opening and continuing support, including training, field, and headquarters support,
supply chain, and quality control.
 Use of intellectual property including trademarks, patents, and manuals. As the
internet protocol (IP) of every franchise system is its most valuable asset, some of which
will change as the system evolves, the agreement defines what is licensed to the
franchisee, how the franchisee can use the IP, and the rights of the franchisor to evolve
the system through changes to the franchisor’s operating manual.
 Advertising. The franchisor will reveal its advertising commitment and what fees
franchisees are required to pay toward those costs.
 Insurance requirements. Franchise agreements will define the minimum insurance a
franchisee is required to have prior to opening and during the term of the agreement.
 Record-keeping and the right to audit the franchisee’s records. The franchisor
defines the records that it needs its franchisees to maintain, the software franchisees are
allowed to use, and its rights to access and audit that information.
 All the rest. Some may call it boilerplate, but in well-developed agreements, it is not.
Among the myriad of issues contained in the franchise and other agreements are the
franchisee's successor rights, default, termination, indemnification, dispute resolution,
resale rights, transfer rights, rights of first refusal, sources of supply, local advertising
requirements, governing law, general releases, personal guarantees, and roll-up
provisions.
In developing a proper set of franchise agreements, each of the elements of the franchise need to
be evaluated and decisions made. Prior to having the lawyers begin to draft the agreements, it is
essential for the franchisor to first develop its business plan, with all the myriad of issues
decided. For most franchisors, it is important that, in addition to working with qualified franchise
lawyers, they first work with experienced and qualified franchise consultants in crafting their
franchise offering.
References:
https://www.entrepreneur.com/encyclopedia/franchising
http://www.pfa.org.ph/what-is-franchising/
https://smallbusiness.chron.com/examples-franchising-companies
http://www.yourarticlelibrary.com/business/franchising-types
http://www.pfa.org.ph/benefits-of-franchising/
https://www.investopedia.com/terms/f/franchise.asp
https://www.entrepreneur.com/article/252591
https://www.franchisebusiness.com.au/nine-characteristics-that-make-a-good-franchisee/
https://francity.com/about-franchising/types-of-franchises/
http://www.thebalancesmb.com/franchise-agreement-1350570