As a franchisor, there are a number of different documents that you could have. But what franchising documents should you have, do you have, and must you have?
You should have a franchise prospectus, but it’s not compulsory. Effectively a sales tool, the franchise prospectus should be handed to anyone interested in buying your franchise. It’ll contain an overview of the franchise opportunity, best presented in a graphical and easy to read manner that matches your branding. Some useful information to have in the prospectus:
- About the franchise, and the story of the business
- The demand and the market
- The training and support that you provide
- What is included in the franchise package
- How much the franchise costs, including a breakdown of the fees (eg license fee, management service fees)
- The potential earnings that a franchisee should expect to meet or exceed
- Testimonials from existing franchisees
Do not go into too much detail about the earnings, fees or expenses. Anything that gives away too much information should be behind a Non Disclosure Agreement, such as your predicted profits and losses for franchise units.
The Franchise Prospectus will usually carry a lengthened amount of information as that of your franchise profile or website page. Your franchise directory ads should contain the core info about your franchise offering, but prospects will expect a franchise prospectus when they make an enquiry, along with the opportunity to either book a franchise discovery day or call.
The Franchise Disclosure Document (FDD)
First of all, the Franchise Disclosure Document is not generally used within franchising in the UK, however that’s not to say that you shouldn’t use it. A Franchise Disclosure Document discloses various crucial information about the business. This might include franchise fees, details of the franchisor’s experience, and information about franchisees. If you’re looking to buy a franchise, the Franchise Disclosure Document can be very helpful as it should contain a lot of information that will be crucial in your decision-making process.
Franchise Operations Manual
The Franchise Operations Manual one of the most essential franchising documents. As one of the most important documents, it guarantees the workings of the franchise model. You could consider it as the genetic DNA of your franchise. When compiling a Franchise Operations Manual, it should cover absolutely everything that is needed for the running of the business, so that it operates in accordance with your brand policies. A well-prepared franchise operations manual will consist of, but not limited to,
- The goal of the franchise system
- The day to day running system the franchisee should follow to ensure compliance with your brand and the delivery of the services your customers expect
- Finance and accounting including payroll
- Customer service, including the handling of complaints
- Staff recruitment, training and support
The information included in the Franchise Operations Manual will be diverse and differ depending on the franchise. For example a baby dance class might include information about how the franchisee goes about finding premises to run the classes, whilst a restaurant franchisee might need information about menus and health/safety practices.
The Franchise Agreement is a legal franchising document in place which defines the responsibilities of the franchisor and the franchisee, and defines the relationship between the two. This important document will detail the legalities of the franchise contract as well, such as:
- Intellectual Property
- Termination of the franchise contract
- Dispute resolution
- Force Majure
- Renewal terms
- Details of the systems and operations manual
You should contact a franchise lawyer to help with creating a franchise agreement. It is important that you get it right, because you will depend upon it if either party is in breach of the agreement.
Franchise Deposit Agreement
Different to the franchise agreement itself, the Franchise Deposit Agreement relates to the deposit a franchisee puts down to secure interest in a franchise. The deposit agreement will vary by franchise but often includes aspects like time to launch and time for the franchise investment to be paid and under what conditions and factors the deposit protects.
Franchise Information Memorandum
It is helpful to have a Franchise Information Memorandum, and it goes hand in hand with the Franchise Prospectus if you do. Essentially, the FIM paints a picture of the franchise business and provides useful material for anyone looking to buy a franchise. It should help with anyone looking to invest, to make an informed decision. Useful information to include would be the background of the business, what a franchisee will be doing, and more detailed information about the history. That includes information about existing franchisees and whether or not they’re still trading (and if not, why). It is also helpful to have some franchising FAQs in there.
Part of the whole franchising concept is to make a business scalable. That means replicating the existing business as closely as possible. Which is why brand guidelines in your franchising documents are useful to have, to ensure franchisees consistently run their businesses in the same manner as other franchisees. That means, using the same fonts for marketing, the same colour schemes and the same logo. Any marketing that the franchisee carries out should be approved by the franchisor.
In your Brand Guidelines document, you would want to include your colour palette, the fonts you use and how you use them. Also include variations of the business logo and again, define how these should and should not be used.
Brand guidelines may form part of your Franchise Operations Manual, so you may not necessarily need these as a separate document.
Anything missing? If you’d like to suggest some improvements, changes or additional franchising documents required, get in touch with our team.